US Federal Reserve vice chair for supervision Michelle Bowman said the central bank will restructure its bank-supervision function into five regions, each led by a regional leader accountable for supervisory activity in that area.
Speaking at the Community Banking Research Conference in St. Louis, Bowman said the reorganisation would seek to strengthen “accountability” and clarify decision-making authority.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
The new regions will be supported by the Federal Reserve’s existing Reserve Bank presence but will be aligned with state boundaries rather than Federal Reserve district boundaries.
According to a Reuters report, under the current structure, Federal Reserve officials in Washington set examination policy while the 12 regional Reserve Banks carry out supervision.
Bowman said examiners would remain in their existing Reserve Bank locations and continue overseeing the banks currently assigned to them.
She said the five-region structure would preserve local supervision while simplifying leadership, promoting more consistent supervision, and improving co-ordination with state and federal regulators.
The changes follow a preliminary independent review by Starling Advisory Group into the failure of Silicon Valley Bank, which Bowman said was released last month.
According to Bowman, the review identified a long-standing mismatch between responsibility for supervisory decisions and accountability for them.
“The execution of Federal Reserve supervision is the responsibility of the Vice Chair for Supervision, but it is conducted by the Reserve Banks,” Bowman said.
She added that the structure had, for decades, “disincentivised a critical link between responsibility and accountability”.
Bowman criticised the Federal Reserve’s use of supervisory committees. She said they had been intended to support deliberation and information-sharing, but had increasingly delayed action and obscured responsibility.
“In practice, these committees became a source for plausible deniability and a disincentive for examiners to take prompt and decisive action to address identified risks,” she said.
Reuters reported that Bowman plans to begin interviewing candidates for the regional leadership roles early next year.
The supervisory restructuring forms part of a wider regulatory agenda outlined in Bowman’s speech.
She said the Federal Reserve had introduced supervisory operating principles focused on risks that could cause a “material deterioration” in a bank’s financial condition. She said examinations had in recent years “drifted to focus on process over substance”, prioritising checklists rather than judgements about “safety and soundness”.
Bowman also said the Federal Reserve would later this year consider updates to fixed-dollar asset thresholds in its regulations. The proposal would increase static thresholds and introduce a mechanism to update them every five years for inflation and economic growth.
In her speech, Bowman said the Board would “structural reforms” to bank portfolios defined by asset size and updates to the “large bank tailoring framework” later this year.
Recently, the Federal Reserve concluded adjustments of its bank stress test assessment framework in associated capital mandates.
Under the first rule, the central bank will solicit yearly public feedback regarding “hypothetical scenarios” and substantial methodology revisions.
The second rule instructs the regulator to average performance data across the two latest annual cycles when establishing stress capital buffers for institutions evaluated in consecutive years.
