Fed Governor Bowman Says Banks Should be Ready to Handle Stress


Federal Reserve Gov. Michelle Bowman called on banks to strengthen their liquidity plans for dealing with unexpected stress in a speech given at the Texas Bankers Association Annual Conference in San Antonio.  Bowman encouraged banks to create emergency liquidity plans and ensure they are prepared to enact those plans swiftly, should the need arise.

"Adverse conditions can escalate quickly, and influences beyond a bank management's control, including irrational actors, can impact your business in very short order," she said.

Bowman has been hesitant to peruse sweeping regulatory reforms in response to the failures of Silicon Valley Bank, Signature Bank and First Republic. She reiterated those hesitancies her speech, noting that banks remains well capitalized despite the issues that have arisen as of late.

Instead of sweeping reforms to regulation structures, Bowman favors hyper targeted changes that address issues directly relevant to the reasons for the failures. She believes the Fed should commission an independent, third-party review of the Silicon Valley Bank failure in order to gain clarity into what reforms are necessary at this time.

In the meantime, she said regulators should emphasize preparedness in the institutions they supervise to ensure they are positioned to absorb further stress.

"In a time of potential stress, we need to be forward-focused on bank preparedness so that banks are positioned to address issues of concern," she said. "These include being prepared to address contingency funding needs, with a plan in place that has been tested and is ready to be executed. Regulators need to be supportive of this kind of planning."

Bowman also noted that emergency access to the discount window, the Fedwire payments system and advances from the Federal Home Loan Banks should all be explored in the outside review. 

She encouraged state-chartered banks to get in touch with her directly if they have questions or concerns about supervisory standards. 

"I'm sure you are not surprised that our largest bank CEOs do not hesitate to engage directly with the Board and Reserve Bank presidents," she said. "I see one of my many functions and roles as a Member of the Board of Governors as providing that open door and opportunity for direct engagement with a policymaker for our regional and smaller banks, as well."

"We should avoid using these bank failures as a pretext to push for other, unrelated changes to banking regulation," she said. "Our focus should be on remediating known, identified issues with bank supervision and issues that emerge from the public autopsy of these events."