Federal Reserve Overhauls Bank Supervision to Boost Accountability

The Federal Reserve is planning a major overhaul of its bank supervision system to improve accountability. Fed Vice Chair for Supervision Michelle Bowman announced the changes on Tuesday, aiming to replace the current structure where regional Fed presidents oversee bank examinations with a new system centered on Washington-based officials.

Under the proposed plan, the Fed will create five geographic supervisory regions, each led by a new ‘regional leader.’ These leaders will be responsible for all supervisory activities in their areas, though examinations will still be conducted by staff at regional Reserve Banks. Bowman criticized the existing system, stating it ‘disincentivised a critical link between responsibility and accountability.’

Bowman also highlighted issues with the Fed’s reliance on committees for bank supervision, arguing that this approach delayed actions and blurred accountability. She noted that these committees often provided ‘plausible deniability’ for examiners, discouraging prompt action on identified risks. The changes are part of a broader effort by Bowman to streamline regulatory processes and focus on material financial risks rather than minor procedural issues.

Additionally, the Fed will review asset thresholds that determine when banks face stricter regulatory requirements. Bowman suggested updating these thresholds every five years to account for inflation and economic growth, a move banks have long advocated for to prevent outdated regulations from imposing unnecessary oversight.