The Federal Reserve will scrap its regional-president oversight model for bank supervision and replace it with five new geographic regions, each under a single accountable leader. Fed Vice Chair for Supervision Michelle Bowman tied the overhaul to lessons from the Silicon Valley Bank collapse and said heavy use of committees had let examiners avoid taking action.
The Federal Reserve announced plans Tuesday to restructure its supervision of US banks, replacing the system where regional bank presidents oversee examinations with a model built around accountability to Washington. Fed Vice Chair for Supervision Michelle Bowman unveiled the plan in prepared remarks for a conference at the St. Louis Fed.
Five new regions replace the old structure
Bowman said the restructuring will establish five new geographic regions for bank supervision, each led by a regional leader. Under the current system, Fed leaders in Washington set bank examination policy while the 12 regional Fed banks conduct and oversee the actual supervision across the country.
The new regional leaders will take responsibility for all supervisory activity, which will continue to be carried out by regional Reserve Bank staff. Currently, regional Fed presidents monitor supervision only within their own districts.
Silicon Valley Bank review drove the change
According to Bowman, the existing structure: "disincentivized a critical link between responsibility and accountability", she said in her remarks. She pointed to an independent review of the collapse of Silicon Valley Bank, which she commissioned and which found that Fed examiners were slow to take action. As a result, she said the supervisory function will be realigned toward clearer accountability and decisionmaking authority.
Committees under fire
Bowman also criticized the Fed's heavy reliance on committees in conducting bank supervision, arguing they created delays and unclear responsibility among staff when problems emerged at banks. She said their use should be streamlined. In practice, she said, the committees became a source of plausible deniability that discouraged examiners from taking prompt action on identified risks.
Source: Investing.com
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