Bowman, Modernizing Financial Regulation

Bowman speaking as FSB SRC chair on regulatory and supervisory modernization. No monetary policy content whatsoever: no comment on rates, inflation, or labor. Substance is four guiding principles (material risk focus, tailoring, transparency, forward-looking innovation) plus a status update on the US capital reform package, Supervisory Operating Principles, asset threshold indexing and the FSB AI consultation.

What’s new: Nothing material for rates. Marginal new detail on process: the capital proposal comment period has closed and the Fed is now evaluating feedback and working to finalize; the FSB modernization principles report goes out for public consultation in the fall and then to the G20. Everything else (single capital stack, G-SIB surcharge recalibration and indexing to nominal growth, threshold indexing, supervisory findings reform) restates the March proposal and prior Bowman remarks.

KEY FINDINGS

• Comment period on the US capital framework proposals has closed and the Fed is "evaluating public feedback and working to finalize these rules." Puts final capital rules on the near-term calendar, the main bank-specific catalyst in this speech.
• Proposal commits to indexing the G-SIB surcharge to nominal economic growth and to indexing fixed dollar asset thresholds. Structurally lowers the drift-up in requirements for the largest banks and slows regulatory creep onto mid-size banks: capital relief that compounds over time.
• Explicit repudiation of the "more is better" supervisory model, with SVB cited as the failure case; less severe issues to be downgraded to "supervisory observations." Lower MRA/finding burden for banks, supportive of bank ROE and lending capacity at the margin.
• Capital calibration built bottom-up rather than to a predetermined aggregate target, with stress test and risk-based overlap reduced. Signals the finalized framework is unlikely to raise aggregate large-bank capital, consistent with the market's read since March.
• On the international side, Bowman warns that FSB efforts "to prescribe and enforce strict rules" erode its effectiveness and pushes for jurisdictional flexibility. Reduces the odds of binding global standards constraining US deregulation, mildly negative for cross-border consistency.

FROM THE DOCUMENT

The lesson is that more findings do not equal better supervision.

The comment period recently closed, and we are now evaluating public feedback and working to finalize these rules.

The proposal also commits to indexing the G-SIB surcharge to nominal economic growth going forward.

Efforts to prescribe and enforce strict rules that are not suitable for the diversity of institutions and authorities within individual jurisdictions ultimately erodes the FSB's effectiveness.