A senior Federal Reserve official has criticized proposals to increase bank capital requirements and called for an “independent and impartial” investigation into the rapid failure of US banks earlier this year.
Fed governor Michelle Bowman said Sunday that a recent report into banking failures put together by the US central bank’s vice chair for supervision, Michael Barr, was “not reviewed by the other members of the Board prior to its publication.”
“Troublingly, other Board members were afforded no ability to contribute to the report’s content,” she told a conference in the Austrian city of Salzburg in prepared remarks.
“There is a genuine question whether these efforts provide a sufficient accounting of what occurred,” she added.
Barr’s report called for greater banking oversight while admitting to the Fed’s own failures in its oversight of the failed California lender Silicon Valley Bank (SVB).
Bowman’s comments highlight the division at the top of the Fed over the best path forward on bank regulation following the swift collapse of regional lenders including SVB, which failed following a bank run by concerned depositors in March.
– ‘Unintended consequences’ – Speaking in a Congressional hearing on Thursday, Fed Chair Jerome Powell addressed reports that regulators are considering raising capital requirements for some US banks by as much as 20 percent.
“The capital requirements will be very, very skewed to the eight largest banks,” he said, adding that there may also be some capital increases for other banks.
But he said that “none of this should affect banks under $100 billion (in assets).
On Sunday, Bowman said there was “room to improve bank supervision for large banks,” adding that such reform efforts should be “informed by an impartial and independent review of what led to the failures.”
“We must be circumspect about what went wrong, deliberate about what to fix, and cognizant of unintended consequences,” she said.
“Misperceptions and misunderstandings about the root causes,” of the bank’s failures could cause “real harm to banks and their customers, to the financial system, and to the broader economy,” she added.
Bowman said she expected that an independent review into the matter would “find improvements to supervision, revisions to liquidity requirements, or improvements to bank preparedness to access liquidity are more effective than increases in capital for a broad set of banks.”
“It is abundantly clear that regulatory and supervisory reform is on the way,” she said. “But we should ensure that changes ultimately promote a safe and sound banking system.”
