Urges changes to application process, warns against misplaced regulatory focus
Federal Reserve governor Michelle Bowman is calling for greater transparency in banking oversight, warning that regulatory inaction and opacity have become troubling trends that could undermine the financial system.
Speaking at the American Bankers Association conference in Phoenix, Bowman criticized regulatory agencies for failing to provide clear guidance to financial institutions, leading to uncertainty and inefficiencies.
“The greater flexibility afforded in the supervisory process can lead to poor outcomes, often caused by the temptation to use inaction and opacity as supervisory tools,” Bowman said Monday. “These tools, inaction and opacity, are not appropriate and must be subject to appropriate scrutiny or purged from the toolkit altogether.”
She questioned whether regulators have become too focused on non-financial risks, such as IT, operational risks, and governance, at the expense of monitoring core financial stability issues.
Bowman called for a reassessment of the entire bank oversight system to determine “what is working, what is broken, and what needs to be updated.”
Bowman also took aim at the slow-moving bank application and merger approval process, calling it another example of regulatory inaction that creates unnecessary barriers for financial institutions.
She proposed the creation of a specialized resource within the Federal Reserve to help regional reserve banks provide clearer guidance to new applicants, allowing them to navigate regulatory hurdles more efficiently.
Read next: This was the barrier to 900,000 mortgages
Her criticism extended to the merger approval process, which she described as unnecessarily prolonged, discouraging competition and expansion in the financial sector.
“In my view, the purgatory of a long application process is another form of regulatory ‘inaction’ that must be eliminated,” she said.
While much of her speech focused on bank oversight, Bowman also addressed the Federal Reserve’s approach to interest rates, signaling that she favors a gradual and cautious strategy in response to inflation pressures.
Bowman noted that core inflation remained elevated at 3.3% in January, highlighting the challenge of bringing price growth back to the Fed’s 2% target. She also pointed to rising equity prices as a factor that may have slowed disinflation efforts.
“Having entered a new phase in the process of moving the federal funds rate toward a more neutral policy stance, there are a few considerations that lead me to prefer a cautious and gradual approach,” Bowman said.
“Given the current policy stance, I think that easier financial conditions from higher equity prices over the past year may have slowed progress on disinflation.”
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
