The Federal Reserve is reorganizing its bank supervision system to create five regions based on state borders, as announced by Michelle Bowman, vice chair for supervision, during the Community Banking Research Conference in St. Louis. This change aims to foster accountability and streamline decision-making, following insights from the Conference of State Bank Supervisors’ regional model.
Read More
Bowman emphasized that this revised structure will enhance accountability by assigning regional leaders specific supervisory responsibilities. Fed examiners will remain in their current reserve banks and continue overseeing the banks they currently supervise. She stated, "This approach clarifies accountability and decision-making and enables a consistent application of supervision."
According to Bowman, using state lines instead of reserve bank district boundaries will facilitate more effective coordination with both state and federal regulatory agencies. The newly formed regional structure is expected to simplify leadership while maintaining local oversight.
This reorganization aims to address longstanding structural challenges that undermine the Fed's supervision capabilities. The existing web of committees has reportedly created confusion and delays in decision-making, which Bowman attributed to a lack of clarity regarding authority and accountability. She referred to a recent preliminary report by the Starling Advisory Group on the collapse of Silicon Valley Bank, highlighting the need for better alignment between decision-making authority and supervisory accountability.
Bowman acknowledged that the existing framework has discouraged prompt action from examiners, contributing to dysfunction. “We have to address long-standing issues embedded in our institutional culture,” she said, stressing the importance of not losing sight of the core mission of safety and soundness in banking supervision and regulation.
Roman Goldstein, senior director at Klaros Group, noted that changing organizational culture is a lengthy process, referencing a previous effort by the Office of the Comptroller of the Currency in 2013 that yielded improved supervision over time.
Conversely, Christopher Appel, director of banking policy at Better Markets, expressed skepticism regarding the effectiveness of the proposed changes. He questioned whether the restructuring will lead to earlier identification and escalation of risks by Fed examiners, a critical issue that surfaced prior to the SVB crisis. Appel cautioned that simply reorganizing reporting lines might not sufficiently address the fundamental issues at the Fed.
Bowman also indicated that, later this year, the Fed will evaluate broader structural reforms related to bank portfolios categorized by asset size and the tailoring framework for larger banks.