Fed's Bowman warns of 'troubling trend' of oversight inaction
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The news: US Federal Reserve Governor Michelle Bowman warned of a “troubling trend” of inaction and opacity in bank oversight, calling for greater transparency and scrutiny in the supervisory process.
Speaking at an American Bankers Association conference in Phoenix on Monday (Tuesday AEDT), Bowman called for a review of bank oversight, warning that “inaction and opacity” in the supervisory process can lead to poor outcomes and must be scrutinised or removed.
In prepared remarks, Bowman criticised the opacity of supervisory ratings, arguing that financial risks have been deprioritised in favour of non-financial concerns like IT and governance.
Her speech also highlighted concerns about declining new bank formations, attributing this in part to an unclear and burdensome applications process.
Bowman also questioned delays in merger approvals and called for clearer regulatory standards, and a review of outdated regulations, particularly those affecting de novo banks and anti-money laundering thresholds.
The numbers: On monetary policy, she said settings were “now in a good place” despite inflation risks, with January’s core consumer price index rising 3.3% year‐on‐year.
Amid uncertainty from the Trump administration’s trade policies, she noted “upside risks” to inflation, but did not name them.
Bowman’s remarks suggest she wants greater confidence that inflation will moderate further before any further rate cuts from the current 4.25%–4.5% range.
While she expects price pressures to ease this year, inflation remains elevated, with the core consumer price index expected to rise 2.6% in January. That is down from 2.8 in December and 3% in late 2023, she said. The PCE is the Federal Reserve’s favoured inflation gauge and its January reading will be released on 28 February.
What they said: "Supervision differs significantly from the regulatory process," she said.
"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. In my view, these tools, inaction and opacity, are not appropriate and must be subject to appropriate scrutiny or purged from the toolkit altogether."
The source: Michelle Bowman speech
