By Pete Schroeder
WASHINGTON, Oct 6 (Reuters) – The Federal Reserve plans to overhaul how it supervises US banks, restructuring its model with a new one that will be more accountable to Washington, the central bank’s top regulatory official said on Tuesday.
Fed Vice Chair for Supervision Michelle Bowman said the new regime will create five new geographic regions for bank supervision, with each led by a “regional leader.” Currently, Fed officials in Washington set bank examination policy, but the actual supervision is conducted by the 12 regional Fed banks across the country.
In prepared remarks for a conference at the St. Louis Fed, Bowman argued that the existing structure “disincentivized a critical link between responsibility and accountability,” pointing to an independent review of the collapse of Silicon Valley Bank, which she commissioned. It found that Fed examiners were slow to take action.
“The Federal Reserve supervisory function will be realigned to implement a culture of accountability and clear decisionmaking authority,” Bowman said.
Under the new arrangement, new regional leaders will be charged with overseeing all supervisory activity, which will still be conducted by regional Reserve Bank staff. Bowman said she plans to begin interviewing for those leadership roles early next year.
Bowman also criticized the heavy use of various committees by the Fed in conducting bank supervision, which she argued created delays and muddied responsibilities among central bank staff when problems emerged at banks, and she argued their use should be streamlined.
“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.
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Bowman has embarked on a massive overhaul of how the central bank oversees the nation’s largest and most complex banks. Since taking the head regulatory role at the Fed in 2025, she has replaced supervisory leaders, trimmed staff and issued new guidelines streamlining what issues examiners should probe and how they ding institutions for shortcomings.
Bowman has argued that examiners should focus primarily on material financial risks at banks, and that examiners have gotten distracted over the years by minor procedural shortfalls.
She also announced on Tuesday that the Fed later this year would consider updating asset thresholds that determine when banks should face stricter rules. Reuters reported in September that the central bank was working on such a plan, which could give banks more room to grow before triggering new rules on capital, liquidity and stress testing.
As part of that effort, Bowman said the Fed would consider updates to fixed-dollar asset thresholds, as well as a mechanism that would update them every five years to account for inflation and economic growth. Banks have complained for years that fixed asset levels can become outdated and result in stricter rules being applied to firms that were not originally the target of such oversight.
“We see this approach as positive for large banks,” wrote Jaret Seiberg, an analyst with TD Cowen. “It will mean banks will not be at risk of becoming subject to enhanced prudential supervision simply because they grow in line with the economy.”
(Reporting by Pete Schroeder; Editing by Paul Simao and Andrea Ricci )
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