In testimony before the U.S. House Committee on Financial Services, Michelle W. Bowman, Vice Chair for Supervision at the Federal Reserve, outlined a broad agenda for U.S. bank oversight. Her focus was on clearer supervisory standards, greater proportionality and updated capital rules for both large and community banks.
Bowman framed her approach around a core objective: supporting a safe and sound banking system that enables economic growth while safeguarding financial stability.
A Resilient System Under Competitive Pressure
Bowman said the U.S. banking system “remains sound and resilient,” supported by strong capital ratios and significant liquidity buffers. However, she highlighted increasing competition from nonbank lenders, which continue to grow without facing the same capital, liquidity and prudential standards as regulated banks.
She argued that banks must be able to compete effectively. In this context, Bowman referenced the Federal Reserve’s work with other agencies on capital, liquidity and diversification standards for stablecoin issuers under the GENIUS Act. She also called for greater clarity on the permissibility and risk treatment of digital asset activities, stressing the need to encourage innovation in a responsible way while strengthening supervision of emerging risks.
Proportionality for Community Banks
Bowman reiterated her long-standing view that supervisory expectations should reflect differences in size, complexity and risk. She warned against applying policies designed for the largest banks to smaller, less complex institutions.
She supported congressional efforts to update static statutory thresholds, including those within the Bank Secrecy Act. In particular, she said Suspicious Activity Report and Currency Transaction Report thresholds should be reviewed so resources are focused on genuinely suspicious activity.
Bowman also highlighted recent Federal Reserve proposals to adjust the community bank leverage ratio and introduce new capital options for mutual banks, noting that further refinements are under consideration. She signalled an intention to streamline community bank merger, acquisition and de novo chartering processes, with a framework that recognises their unique strengths.
Modernising Capital Rules for Large Banks
For larger institutions, Bowman outlined plans to modernise and simplify the capital framework. She highlighted steps to improve the transparency of stress testing, including clearer disclosure of models, scenario design and the 2026 scenarios. Significant future model changes, she said, should be subject to public consultation.
On the supplementary leverage ratio, Bowman supported changes to ensure it functions as a backstop rather than a binding constraint that discourages low-risk activities such as holding Treasury securities.
She described finalising Basel III in the United States as an important step to reduce uncertainty and support better-informed decision-making. Bowman advocated a bottom-up calibration of capital requirements and cautioned against reverse-engineering outcomes. She also pointed to the mortgage framework, noting that current treatment has reduced bank participation and that more granular risk differentiation could benefit banks of all sizes.
The Federal Reserve is also refining the G-SIB surcharge as part of broader capital reform, which Bowman said must strike the right balance to avoid limiting the sector’s ability to support the economy.
A Sharper Supervisory Framework
Bowman emphasised the need for supervision that focuses on material risks and is tailored to each institution’s profile. She referenced recent guidance to examiners and plans to clarify standards for enforcement actions and supervisory findings.
She confirmed a review of the CAMELS rating system, noting concerns that some components (particularly management) have become subjective. Clearer metrics, she said, would improve transparency and consistency.
Bowman also highlighted the decision to remove reputational risk from supervisory programmes and said the Board is considering a rule to prevent supervisors from pressuring banks to deny services based on constitutionally protected political or religious beliefs.
Ready for Changing U.S. Bank Supervision?
If you’d like help understanding how changes in U.S. bank supervision could affect your organisation, our team can help. Our trusted AI, powered by human oversight, supports clearer regulatory intelligence as the compliance and risk landscape continues to evolve.