WASHINGTON—Saying the U.S. regulatory framework has grown expansively to become overly complicated and redundant, Federal Reserve Governor Michelle Bowman outlined her vision for regulatory reform during her confirmation hearing to serve as the Fed’s next vice chair for supervision.
Bowman Wednesday testified before Senate Banking Committee.
“If confirmed, I will prioritize reforming and refocusing supervision, restoring regulatory tailoring, ensuring a viable path for innovation in the banking system, and promoting transparency and accountability,” Bowman told the committee.
Bowman said supervision must be reformed and refocused to better address core and material financial risks.
“We have seen significant shortcomings in supervision over the past few years that must be addressed to ensure that the U.S. banking system is safe and sound,” she said. “Supervision must be grounded in applicable law, and provide clear standards to regulated institutions. Supervisory expectations should not surprise regulated firms.”
Bowman emphasized that supervision cannot eliminate risk from the banking system, but it can and should promote sensible risk management that enables the banking system to support economic growth and serve the financial needs of all Americans.
“And should a bank fail, supervision should minimize and mitigate any harm to consumers, businesses, and the financial system,” she said.
Bowman added that regulations must be approached in a pragmatic way that ensures they are efficient and effective.
Pragmatic Approach
“This pragmatic approach requires identifying the problem targeted by the regulation, considering the costs and benefits of any proposed change, as well as incentive effects, impacts on markets, and potential unintended consequences,” she said. “We must prioritize the identification and remediation of issues that may pose long-term structural problems to the banking system and the critical markets it supports, including addressing regulatory disincentives to Treasury market intermediation activities by banks and their affiliates.”
Bowman pledged to work on improvements in bank regulation with he counterparts at the other regulatory agencies.
“I will continue to rely on a tailored approach, especially for community and regional banks,” she said. “Tailoring is fundamental to ensuring we maintain and enhance the diversity of the U.S. banking system, which must include and support banks of all sizes.”
Bowman said the U.S. regulatory framework has grown expansively to become overly complicated and redundant, with conflicting and overlapping requirements.
“This growth has imposed unnecessary and significant costs on banks and their customers,” she said.
Bowman added that regulators must promote innovation in the banking system.
“To remain viable and competitive, banks must be able to consider new technologies that can improve products and services, and lower costs. Regulators should adopt an approach that encourages and promotes sensible innovation,” she said.
Bowman closed by stating that to promote accountability, regulators must be transparent—both in supervision and regulation.
“Successful policymaking requires openness and humility, caution and a deliberate approach. I can assure the committee that if I am confirmed as the vice chair for supervision, I will be strongly committed to these values.”