Jun 26, 2023 - Economy

Top Federal Reserve official slams coming banking proposals

Federal Reserve governor Michelle Bowman. Photo: Al Drago/Bloomberg via Getty Images

The Federal Reserve and other regulators look likely to push more stringent requirements for the nation's biggest banks. Over the weekend, it became clear there would be a vocal opponent inside the central bank to any such changes.

What's new: Fed governor Michelle Bowman — appointed by former President Trump in 2018 — came out swinging on Sunday against tougher regulations being considered by colleagues on the board.

  • Notably, Bowman also criticized the Fed's own report on what led to the collapse of Silicon Valley Bank. She warned against using what she called "perceived weaknesses" in the banking sector to push for harsher regulation.

Why it matters: It is an unusually provocative speech for an official on the Fed's board of governors, where disagreements rarely spill into public view.

  • Bowman's comments are the latest flashpoint on the topic of banking regulation. Recall when then-Fed governor Lael Brainard issued a strongly worded dissent against regulatory changes led by Trump-appointed vice chair for supervision Randal Quarles.

Driving the news: Now there appear to be differing opinions between Bowman and Michael Barr, the Biden-appointed official leading new regulatory proposals.

  • In the speech, Bowman takes aim at the Fed's SVB post-mortem — an initiative led by Barr.
  • "Troublingly, other Board members were afforded no ability to contribute to the report's content," she said, calling into question whether the report provides "a sufficient accounting of what occurred."

What they're saying: "Misperceptions and misunderstandings about the root causes [of bank failures] and related issues could result in changes that are not only unnecessary but result in real harm to banks and their customers, to the financial system, and to the broader economy," Bowman said.

  • Bowman said higher capital requirements for banks "could unnecessarily hinder bank lending and diminish competition."

The bottom line: With the Fed's board of governors now stacked with Biden nominees, Barr likely has the votes to enact a more aggressive regulatory agenda — but that doesn't mean it won't involve a fight.

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