Fed's Bowman calls for external review of Silicon Valley Bank oversight

WaFd

12/05/2023 08:00

By Pete Schroeder
       WASHINGTON, May 12 (Reuters) - Federal Reserve Governor
Michelle Bowman said Friday that the central bank should hire an
outside party to further examine the events that led to the
abrupt failure of Silicon Valley Bank, arguing in a rare Fed
insider's critique that it is a necessary supplement to its own
internal review.
    In prepared remarks, Bowman also cautioned against using
recent turmoil in the banking sector as "pretext" for aggressive
new banking rules, calling the current system "fundamentally
strong."
    Speaking at a conference in Germany, Bowman argued an
independent review was necessary to ensure the Fed holds itself
accountable for shortcomings overseeing the bank before its
March collapse, and comes after Fed Vice Chair for Supervision
Michael Barr already published the central bank's own autopsy.
    "I believe that the Federal Reserve should engage an
independent third party to prepare a report to supplement the
limited internal review to fully understand the failure of SVB.
This would be a logical next step in holding ourselves
accountable and would help to eliminate the doubts that may
naturally accompany any self-assessment prepared and reviewed by
a single member of the Board of Governors," she said.
    Bowman also warned against any aggressive broad push for
stricter bank rules in the wake of recent failures, arguing
tough rules are already in place and regulators should take a
more targeted approach.
    "We should avoid using these bank failures as a pretext to
push for other, unrelated changes to banking regulation," she
said. 
    "The unique nature and business models of the banks that
recently failed, in my view, do not justify imposing new, overly
complex regulatory and supervisory expectations on a broad range
of banks," she added.
    The remarks from Bowman, who was appointed to the Fed by
former President Donald Trump, are a rare criticism of internal
work by a colleague at a body that strives to pursue policy via
consensus. Barr was nominated for the central bank's top
regulatory post by President Joe Biden.    
    The comments also are the latest indication that while Fed
Chairman Jerome Powell has forged and held a consensus on
monetary policy among his fellow Board members - even through a
year of grueling rate hikes - keeping that cohesion has proven a
difficult order when it comes to the Fed's banking oversight
portfolio.
    In the same speech, Bowman said the Fed will probably need
to raise interest rates further if inflation stays high.
    Bowman said an external review would allow for a fuller
understanding of what drove the bank's failure and how to
address shortcomings. 
    Barr's review, published at the end of April, found that Fed
supervisors failed to fully appreciate SVB's problems and did
not escalate identified shortcomings promptly. Barr said
improving the speed and force of Fed bank supervision would be a
top priority, and he has previously indicated he would pursue
tougher rules on regional banks.
    Bowman said an external review should also be broader than
Barr's, and should examine the weekend immediately after SVB
failed, when regulators failed to find a buyer for the bank and
ultimately stood behind all depositors at it and New York-based
Signature Bank in a bid to stave off broader contagion. She also
said the review should examine whether the Fed's operational
tools to aid banks, such as payment transfer systems and
emergency lending facilities, are in need of an update.

 (Reporting by Pete Schroeder; editing by Diane Craft)
 ((Pete.Schroeder@thomsonreuters.com; 202-310-5485;))