Michelle Bowman, Vice Chair for Supervision at the Federal Reserve Board, sat down with Professor Reena Aggarwal at our Financial Markets Quality Conference to discuss her immediate priorities.
First up is rightsizing and assessing the large bank capital requirements. While there has been criticism against regulators that they come up with siloed regulations for financial institutions, Bowman said there needs to be a comprehensive way of looking at these requirements and what could be improved, particularly in stress testing.
Bowman added that the framework needs to be reset so that discussions around lowering a rating of a bank rely heavily on at least one financial-related component. There also needs to be transparency and tailoring so that the complexity, asset size, business model, and risk that an institution presents to the financial system is considered.
While these changes won’t necessarily result in huge changes in ratings, they will provide more certainty and clarity for financial institutions during examinations, Bowman said.
As far as interest rates? Bowman said the Fed may implement three interest rate cuts by the end of the year. She added that the Fed is within range of its mandate when it comes to inflation, so it’s time to shift focus to proactively supporting labor market conditions.