By Pete Schroeder
WASHINGTON (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)
