Federal Reserve Vice Chair for Supervision Michelle Bowman recently announced a significant restructuring of the Fed’s supervisory function, revealing plans to update the regulatory tailoring framework. In her speech, Bowman acknowledged that past examinations focused too heavily on procedural checklists rather than the substantive evaluation of a bank’s safety and soundness. The Fed aims to refocus its supervision on material risks that pose a threat to a bank’s financial viability.
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Bowman noted that while progress has been made in supervisory reforms, more work remains. She highlighted new supervisory operating principles and recent guidance on third-party risk management as initial steps to clarify expectations. However, she indicated that initiatives such as CAMELS rating reform are still pending.
The restructuring will create a clearer culture of accountability and decision-making authority within the Fed’s supervision function. Bowman expressed concern about the lack of alignment between decision-making authority and accountability, particularly in light of findings from the recent Starling review of Silicon Valley Bank's failure. The reorganization will involve five regions, each led by a regional leader responsible for all supervisory activities in that area, with reports directed to the Board’s Deputy Director of Supervision.
Bowman also previewed updates to asset thresholds within the regulatory tailoring framework. The Federal Reserve is expected to consider broader reforms to bank portfolios defined by asset size later this year. She mentioned plans to expand the definition of community banks while ensuring that supervision and regulation remain tailored and risk-calibrated. Proposed adjustments would address inflation and economic growth by increasing static dollar thresholds in regulations and establishing a mechanism to update these thresholds every five years.
In other developments, Bank Policy Institute CEO Greg Baer discussed challenges in the evolving payments landscape, noting efforts to transition payments onto blockchains. However, legacy systems and scalability concerns pose significant obstacles.
Bowman also mentioned insights from FDIC Chair Travis Hill regarding recent proposals to enhance supervision and streamline the review process for mergers and acquisitions (M&A). Hill provided commentary on the proposed overhaul of CAMELS ratings, emphasizing the need for clarity in defining issues faced by banks.
In addition, proposals by the FDIC and OCC aimed at modernizing the disclosure of confidential supervisory information were highlighted, intending to reduce uncertainty surrounding these disclosures for banks.
Finally, in updates from the crypto sector, the Financial Crimes Enforcement Network has moved to withdraw dormant crypto anti-money laundering proposals, while the CFTC has proposed regulations regarding leveraged crypto trades. A notable criminal case involved cybersecurity consultant Jonathan Spalletta, who was convicted for stealing nearly $55 million in cryptocurrency.