Federal Reserve Restructures Bank Supervision to Boost Accountability
The Federal Reserve is launching its most significant restructuring of bank supervision in a decade, aiming to address accountability and decision-making flaws. Fed Vice Chair for Supervision Michelle Bowman unveiled the plan, criticizing the current system for its "fundamental flaws in responsibility and accountability." The core change involves consolidating supervisory authority from 12 regional Fed banks into five new geographic regions, each led by a dedicated "regional head." Staff at regional Fed banks will still conduct examinations, but supervisory authority will shift from regional Fed bank presidents to these new heads.
Bowman highlighted the collapse of Silicon Valley Bank as a key motivator for reform, noting that Fed examiners had identified risks but failed to act promptly. The current system separates policy-setting in Washington from execution by regional banks, weakening accountability. Bowman also criticized the Fed's reliance on committees, arguing they create delays and "plausible deniability" among examiners. The reforms will streamline committee usage to strengthen individual accountability.
Beyond structural changes, the Fed plans to review fixed asset thresholds later this year. These thresholds determine when banks face stricter regulatory requirements. The proposed adjustments include not only updating the thresholds but also implementing a five-year automatic revision mechanism to account for inflation and economic growth. This dynamization could provide mid-sized banks with more flexibility before triggering stricter supervision.
The reforms are part of Bowman's broader efforts since she became the Fed's chief supervisory officer in 2025. Her changes include replacing supervisory leadership, reducing staffing levels, and issuing new guidelines to streamline examiner reviews. The adjustments are expected to shorten decision-making chains, reduce coordination friction, and enhance the supervisory system's responsiveness and enforcement capacity.