Throughout an business occasion at the moment, Federal Reserve Gov. Michelle Bowman praised banks for his or her current examples of resilience in the course of the pandemic, and the way current supervision and regulation have contributed to a “safer, stronger, higher capitalized” banking system.
Bowman’s feedback primarily targeted on what she referred to as the Fed’s “incremental strategy to ongoing refinements” in supervision and regulation and the crucial points related to massive banks. “I’m not against adjustments that make sense, primarily based on the expertise we’ve gained from making use of present guidelines and approaches, or prompted by new and rising points,” she mentioned, explaining that regulation and supervision should be nimble to handle new security and soundness dangers however ought to at all times contemplate tradeoffs and potential unintended penalties.
Among the many regulatory points she cited for giant banks have been stress testing, mergers and acquisitions, decision planning, cryptoassets and capital regulation—the place a lot of her remarks have been targeted. Capital regulation was an space the place necessities have been “rapidly bolstered with out in depth evaluation in response to the 2008 monetary disaster,” she mentioned, leading to “redundant strategies of calculating capital and calls for that corporations of all sizes and threat profiles adjust to the very best necessities.” A one-size-fits-all strategy was framed across the largest banks whose actions introduced essentially the most important dangers, ignoring financial institution measurement and enterprise mannequin.
Cautioning that “over-regulation can restrain financial institution lending,” Bowman emphasised that it’s vital to consider capital “holistically,” which supplies a chance to think about changes to the parts of capital necessities for bigger banks, such because the countercyclical capital buffer.
“Whereas having releasable capital buffers shouldn’t essentially be dominated out, in my opinion, after a decade of stress testing and up to date real-life stress expertise, we’ve seen that the present degree of capital necessities has confirmed to be satisfactory for banks to take care of important stress,” she mentioned. “Balancing security and soundness with the necessity for acceptable risk-taking signifies that we must always not merely assume that the additional layering on of capital necessities, together with via the appliance of the CCyB, could be useful.”