Zach Gibson/Bloomberg
The Federal Reserve Board’s leading internal voice of dissent believes a recent Supreme Court ruling could help fix regulatory rulemaking practices at the Fed and elsewhere.
In a detailed speech on policymaking, Fed Gov. Michelle Bowman critiqued the agency’s recent regulatory pursuits, noting that they have failed to zero in on key issues in the banking system and have lacked sufficient cost benefit analysis.
She also expressed hope that the high court’s ruling this year on Loper Bright Enterprises vs. Raimondo — which ended the legal precedent of courts deferring to agencies on statutory interpretations known as Chevron deference — would help right the ship.
“The elimination of Chevron deference has the potential to transform agency rulemakings positively — in a way that promotes the pragmatic approach I outlined in this discussion,” Bowman said. “The same considerations we follow in the pursuit of our statutory objectives could help support rulemakings that are built upon a stronger factual and analytical basis, with a thorough and more comprehensive explanation of an agency’s policy approach.”
The remarks, delivered in front of the Forum Club of the Palm Beaches, a Florida-based public affairs group, were Bowman’s first since Donald Trump emerged victorious in this month’s presidential election.
Bowman is one of two remaining Trump appointees on the Fed Board of Governors and has been floated as a potential successor to Michael Barr as vice chair for supervision, the agency’s chief regulatory official. Currently, she holds the board seat reserved for someone with community banking or bank supervision experience, of which she has both.
In her speech, Bowman argued that bank regulation should not aim to eliminate all risk from the banking system, but rather to ensure those risks are being managed appropriately.
She added that the Fed should promote economic growth through banks and avoid policies that push activities into less regulated nonbanks.
“A banking system that is safe and sound yet irrelevant would not fulfill our regulatory objectives, but would be the inevitable outcome of following a path that strives for elimination of risks rather than promotion of effective risk management,” she said. “Banks are unique individual businesses, not public utilities.”
Bowman said the Fed’s recent regulatory pursuits have missed the mark because they sought to address the wrong issues. Specifically, she flagged the agency’s response to the failure of Silicon Valley Bank last year, which she said errantly focused on increasing capital requirements, expanding the scope of the regulatory framework for the nation’s largest banks and potential “widespread changes” to liquidity requirements and expectations for all banks.
Bowman also noted that the episode has led to examiners “finding supervisory deficiencies in the management of well-capitalized and financially sound firms,” which she said amounted to regulators picking “winners and losers.” She said such actions create the impression that the agency is pursuing “unrelated policy goals.”
“A crisis is not a regulatory blank check,” she said.
Bowman also criticized existing parts of the regulatory framework, such as the supplementary leverage ratio, the global systemically important bank surcharge, and the liquidity coverage ratio, which she said “pose known and identified constraints on the Treasury market that may contribute to future stress and market disruption if left unaddressed.”
She said the Fed should revisit all regulations that cannot stand up to a cost-benefit analysis.
“There are a number of areas where right-sizing regulation and our supervisory approach would be appropriate and can be done in a way that does not sacrifice safety and soundness or threaten financial stability,” she said.
