US Federal Reserve Governor Michelle Bowman called for less opacity in banking supervision, saying that the supervisory and regulatory approach needs to be updated to better serve the financial system.
“Greater flexibility allowed in the supervisory process can lead to poor outcomes, often caused by the temptation to use inaction and opacity as supervisory tools,” she said Monday in remarks prepared for an American Bankers Association conference for community bankers in Phoenix.
“These tools, inaction and opacity, are not appropriate and should be subject to proper scrutiny or purged from the toolbox altogether.”
Bowman pointed to several areas that he believes should be reviewed, including supervision, banking applications, and regulation.
He questioned whether current supervision “has led to a world where basic financial risks have been deprioritized and too much emphasis has been placed on non-core and non-financial risks, such as IT, operational risk, management, risk management, internal controls, and governance.”
Bowman said regulators need to take a step back from the entire banking regulatory system and ask themselves “what is working, what is broken, and what needs to be updated.”
“When a bank requests feedback and commits in good faith to provide information and answer reasonable questions, regulators have an obligation to provide a clear response,” he said.
Bowman also called for a “specialized resource” that can be used by any of the Fed's reserve banks during pre-application discussions with new bank applicants with the goal of “identifying and finding achievable paths to yes.” He also said that some of the same issues arise in merger applications.