Fed Governor Bowman on Resolutions
A recent speech from Federal Reserve Governor Michelle Bowman entitled, "New Year's Resolutions for Bank Regulatory Policymakers," tells us, "Our Federal Open Market Committee (FOMC) meeting in December left the target range for the federal funds rate at 5-1/4 to 5-1/2 percent and continued the run-off of the Fed's securities holdings. Inflation data over the past six months indicate that the Committee's past policy actions are having the intended effect of bringing demand and supply into better balance. This continued progress on lowering inflation reflects a restrictive policy stance with the most recent 12-month total and core personal consumption expenditures inflation readings through November at 2.6 and 3.2 percent respectively.... Considering this progress, I voted to maintain the policy rate at its current level while we continue to monitor the incoming data and assess the implications for the inflation and economic outlook. And based on this progress, my view has evolved to consider the possibility that the rate of inflation could decline further with the policy rate held at the current level for some time. Should inflation continue to fall closer to our 2 percent goal over time, it will eventually become appropriate to begin the process of lowering our policy rate to prevent policy from becoming overly restrictive. In my view, we are not yet at that point. And important upside inflation risks remain." She also comments, "Twenty-twenty-three brought many significant developments in bank regulation and supervision, beginning with speculation about the now-issued proposal to finalize the Basel III 'endgame' capital rules.... In March, however, priorities and focus changed. The failures of Silicon Valley Bank (SVB) and Signature Bank resulted in the exceedingly rare steps to invoke the systemic risk exception to guarantee all depositors of Silicon Valley Bank and Signature Bank, and to create the Bank Term Funding Program. These were significant emergency actions to support and stabilize the banking system. It is important to note that the Bank Term Funding Program is scheduled to expire in mid-March of this year. Understandably, the bank failures led regulators to take a hard look at what may have been missed in our supervision and what had driven regulatory and supervisory priorities leading up to these bank failures.... As I've noted in the past, I think there are reasons to question whether these proposed revisions are effective and appropriately targeted and calibrated, particularly when considering that bank management and supervisory shortcomings more directly contributed to the bank failures than regulatory shortcomings. The banking agencies simply cannot regulate better or more effective supervision. We must appropriately manage our supervisory programs and teams to ensure that effective and consistent supervision is implemented within each firm and that it is effective and consistent across our regulated entities." She adds, "The new year provides a prime opportunity to reflect on the past 12 months and think about how the Federal Reserve can improve our approach. I'm sure many of us took the opportunity to reflect on recent experiences as we rang in 2024. I see the new year as a perfect time to think about how the banking regulators can implement some recent lessons learned. This very brief snapshot of the past year does not cover all of the important developments in the banking system, and the bank regulatory framework, that occurred in 2023. But it is a helpful starting point for considering the year ahead. So now, I'd like to offer three new year's resolutions for bank regulators."
