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Investing.com -- Federal Reserve Board member Michelle Bowman addressed the Kansas Bankers Association Government Relations Conference on Wednesday. The focus of her speech was on banking regulations for 2025 and beyond, emphasizing the importance of regulatory tailoring and promoting innovation within the banking system.
Bowman, who has been part of the Federal Reserve’s board of governors since 2018, shared her views on various issues related to banking regulation and supervision. She highlighted the importance of having a problem-focused approach towards bank regulation and supervision, and the need for innovation in the banking system.
She noted that the U.S. banking system’s unique characteristic is the broad scope of institutions it includes and the wide range of customers and communities it serves. Therefore, regulators must foster a financial system that allows each bank, regardless of its size, to thrive and support a vibrant economy and financial system.
Bowman also emphasized the importance of tailoring in the regulatory framework. Tailoring, she explained, involves calibrating the requirements and expectations imposed on a firm based on its size, business model, risk profile, and complexity. This approach is a reasonable, appropriate, and responsible approach for bank regulation and supervision.
The Federal Reserve board member also discussed the costs associated with the bank regulatory framework. These costs can ultimately affect the price and availability of credit, geographic access to banking services, and the broader economy. She stressed that the regulatory framework should be more effective in balancing the mandate to promote safety and soundness with the need to have a banking system that promotes economic growth.
On the topic of stress testing, Bowman pointed out that the current implementation, outcomes, and process have raised significant questions and concerns about its usefulness in identifying systemic weaknesses. She suggested that the process should be transparent and fair, and that there should be technical improvements to enhance the reliability and credibility of the test and its results.
Bowman also addressed the issue of fraud, particularly check fraud, which has grown in frequency and impact over the past several years. She called for more assertive action to protect bank customers and the financial system.
Innovation, according to Bowman, has always been a priority for banks of all sizes and business models. Regulators must be open to innovation in the banking system and should build and support a clear and sensible regulatory framework that anticipates ongoing and evolving innovation.
In closing, Bowman reiterated the need for a regulatory approach that emphasizes appropriate tailoring of regulatory requirements and supervisory expectations. She also stressed the importance of taking a pragmatic approach in identifying and remediating the most pressing issues, and encouraging ongoing innovation in the banking and financial systems.
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