WASHINGTON — Federal Reserve Governor Michelle Bowman believes there is a viable path forward for the revised capital reform proposal, stressing the need for broad changes informed by industry feedback to secure consensus among Federal Reserve board members.
For the proposal to advance, she suggested federal regulators should repropose it with sweeping changes, also taking into account the simultaneous impacts of
"It's about striking the right balance and I don't see that there are insurmountable obstacles to achieving a more effective or efficient set of Basel capital reforms here in the U.S.," she said. "But I agree with the assessment that Chair Powell noted that the proposal, the way it stands now, requires broad and material changes."
In her remarks — delivered to an audience at the Securities Industry and Financial Markets Association's Basel III endgame roundtable — Bowman stressed that any revamped Basel rule needs to have broad support on the Federal Reserve board, something Federal Reserve Chair Jerome Powell also
Among Bowman's concerns were that the proposed regulations overestimate the risks posed by various banking activities — citing places where the proposal imposes significant increases in risk-weighting on bank assets without clear justification for the risks involved. She said she worries such over-calibration could have adverse effects on agricultural loans, for example, where banks may pull back lending given higher costs associated with funding such activities.
Bowman has long been a critic of the proposal, voting against issuing the draft rule for comment in 2023. She has also
The Fed plans to publish for comment a study gauging the quantitative impacts of the proposal. Bowman said she looks forward to the study because it will shed light on what aspects of the proposal should be changed.
"I think that's one thing that will be extremely enlightening for the members of the board," she said. "Once we have an opportunity to see what that analysis shows, [that will] help inform what the future of this proposal could look like or should look like."
She also spoke about how the effects of other pending regulations — including stricter long term debt requirements for large banks — needs to be considered in tandem to the Basel proposal.
"To understand the entirety of the implications in the aggregate calibrations, we can't move forward in a piecemeal way with changes to Basel III endgame or any of these other proposals and expect that that's going to have an outcome that we could anticipate," she said. "We don't understand how all of these things will work together and what their aggregate impact will be once they're finalized."
Throughout her comments critiquing the proposal, Bowman consistently highlighted the importance of issuing a proposal deemed to be bipartisan and broadly consensus driven. She says that means the final rule will ideally need to be reproposed with significant changes informed by comments submitted by the financial industry and other interested parties.
"And if we want rules that continue to be durable throughout political cycles, throughout economic cycles, we have to do our homework … and bring something together to at least our board that can be broadly supported," she said. "So I look forward to that and I hope that the next step is a reproposal."
