Federal Reserve Vice Chair for Supervision Michelle Bowman outlined significant changes to bank supervision and regulation during a speech at the California Bankers Association Bank Presidents Seminar on Wednesday.

Bowman, who was appointed by President Trump seven months ago, detailed her approach to "pragmatic supervision and regulation" that aims to preserve safety and soundness while ensuring the U.S. banking system remains efficient, innovative, and accessible.

Since June 2025, the Fed has implemented several key reforms, including publishing supervisory operating principles in October to enhance transparency and accountability in examination processes. These principles direct supervisory staff to identify and require early remediation of material financial risks.

"The failure of Silicon Valley Bank exposed critical flaws in our prior supervisory approach, which became an ever-expanding scope of unfocused activities that led examiners and the bank to overlook or downplay severe interest-rate and liquidity risks," Bowman said.

The Fed has also made changes to the LFI ratings framework for large banks, ensuring that a firm's "well-managed" status reflects its overall ratings rather than disproportionately weighting a single component. Additionally, the Fed eliminated the use of "reputational risk" in the supervisory process and rescinded climate guidance that Bowman said "diverted supervisory resources away from risks that are material to safety and soundness."

Recent regulatory improvements include a proposal to recalibrate the community bank leverage ratio from 9% to 8%, modifications to the enhanced supplementary leverage ratio, and revisions to the stress testing program.

Looking ahead, Bowman outlined several initiatives including regulatory proposals to define "unsafe and unsound" practices, updating and indexing asset thresholds to account for economic growth and inflation, and reducing overlap in examinations.

"Community banks should be subject to strict supervisory oversight, but it must be commensurate with their smaller size, simpler business activities, and the modest risks they pose to U.S. financial stability," Bowman emphasized.

The Fed is also working to improve transparency by reviewing the definition of "confidential supervisory information" and recently published the LISCC Operating Manual used to supervise the largest banks, with plans to release additional manuals in the coming months.

Bowman, who has served on the Federal Reserve Board since November 2018, brings experience as a former community banker and Kansas State Bank Commissioner to her role overseeing bank regulation.(Cp)

Source: Investing.com