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Well, good morning to you and to everyone around the world who's watching and listening on Bloomberg television and radio. I am with Michelle Bowman. She is the Vice Chairman for Supervision at the Federal Reserve Board, and we thank you for joining us here. Most people know Michelle Bowman lately as one of the dissenters at the last meeting. You talked last weekend about the fact that you haven't really changed your views, So there's not much to add in that.
I guess yep. The story's out there and I haven't changed my views.
Well, the real reason we wanted to talk to you, of course, is because of your regulatory job. First, can you give us a little feel for how it fits into the overall FED structure. I think most people, unless you're in banking, pay much more attention to the monetary policy activity.
So the role for visor for supervision was in the Dodd Frank Statute after the financial crisis of the odds, and I'm the third person to serve in this role. And so we're moving forward with a number of different opportunities and we overseid this person in this chair oversees the supervision and regulation of the banking system essentially, And here you're.
Going to be talking to the blockchain conference about dbanking. How big a problem is that?
Well, I think it's important to understand that the President issued in executive order because it is a problem in the banking system. And one of the first things that I did in assuming this role was to rescind all of our guidance and to change our supervisory materials that referenced reputational risks so that we could ensure that the Federal Reserve is no longer including that in our examinations
or in our supervisory activities. To ensure that the banks that banks can have as customers anyone that they choose to that's engaged in legal activity, and they can't discriminate against them based on their business model, their political views, or otherwise.
Well, is that a widespread issue? I mean, how do you stamp it out?
Well?
I think it's difficult because all of that happens under the cloak of confidential supervisory information. But as long as our examination teams and our policymakers are focusing on ensuring that reputational risk and debanking is not a part of the banking system going forward.
Then I think that's the way that we'll work to achieve that.
I also spend a lot of time speaking with bankers and with people within the economy, so hopefully if it is happening, someone will let me know and we can try to address it.
If we hear about it again.
Well, there are some areas. Obviously you talk about legalities, and the question of whether marijuana can dealers can be banked or not is kind of a difficult one. But you have something like the crypto industry where reputational risk might come in and you've had a lot of failures there, So what do you tell your bank examiners.
So what we're doing now is we've disbanded our Novel Supervision Group, So it was created two years ago to focus on these kinds of activities, innovation and the integration
of digital assets into the banking system. So what we're doing is we're taking the learnings that we had from that group and we're integrating it back into our reserve bank examination teams so that they understand that, as Congress overwhelmingly supported the passage of the Genius Act, these are very very acceptable activities and they're of course legal, because we're working on developing frameworks that will allow for digital assets to exist both inside and outside the banking system
in a way that is unquestionably allowable activity.
There are also complaints Elizabeth Warren has made some that banks might have locked out customers because of overdraft fees or religious affiliation, political beliefs. Are you adjusting those as well?
Well, that's all a part of the President's executive order and certainly will be included in any debanking oversight that we might do. Is to ensure that anyone who's entitled or eligible for a banking account will have access to banking services.
Now, I know you're moving forward on the enhanced supplementary leverage ratio, but have you decided yet on a final rule.
Well, we've published an initial That was one of the first things that I did as the vice chair for Supervision was to work with my interagency colleagues to publish and put forward this proposal on the supplemental leverage ratio. That's just one component of our capital framework, though, and we're working on all four pillars of that framework, with the stressed capital Buffer, the Jesup surcharge, the basil three proposal, and then the supplemental leverage ratio proposal as well.
Well. I guess my question gets to the timing of when it might come into effect.
So we've already published it, waiting for the comment period to lapse, and then we'll move forward with finalizing that proposal, but hopefully it will be in a comprehensive way with the other three pillars of our capital system capital framework, so that we understand how each one of them builds to the right calibration of capital within the banking system.
And as set up now, you're looking to carve out treasuries and other assets that are risk free or.
Almost so the way that our proposal works is that it doesn't carve out any particular type of asset. So the purpose of the way that we've drafted the supplemental leverage ratio is to ensure that it works as it was intended, which is to be a backstop instead of a binding constraint. And what we've found over the past few years is that it's served in cases where there's been a lot of activity in the treasury markets as
a binding constraint. So we wanted to make sure that banks have the ability to allocate cap in ways that are helpful and productive for them, and that we're not disincentivizing activities that would allow them to intermediate the treasury markets appropriately.
There's a lot of issues out there, so I want to keep moving on through them. Well, we've got you to here, Large Financial Institution rating System, the Bank Policy Institute, the American Bankers Association behind now your efforts to make changes in that. Where is that and what are we likely to see?
So we've published that proposal as well.
That's just a FED only proposal, but as a part of reviewing all of our ratings frameworks, we're also reviewing the Camel's framework. So this is just one part of an overall effort to make sure that our rating systems are rationalized and that they're based and grounded in material financial risks, and that they're not overweighting something that may
not be a material financial risk. They're all important components, but we want to make sure that we're not downgrading without taking in to account if there are deficiencies in material financial conditions. So the large Bank Large Bank Framework proposal that we've put forward for the ratings proposal, originally it was designed there are three buckets of there's capital, liquidity, and then governance and controls.
The way that it was.
Initially designed is that a deficiency in any one of those three categories would downgrade a bank in its condition.
So now this.
Proposal would require two deficiencies in two different buckets, so that we're not relying on one that might not be a material financial risk to downgrade a bank's condition overall.
Yet another one that's hanging out there is the Basil three implementation.
Right where are you on that?
I know that basically the FED is looking to redo what had been proposed.
Well, I think what we're looking at doing is going back to the original BOSL agreement from twenty seventeen to make sure that we're heeuing closely to what that agreement included. We've also seen that every other jurisdiction around the world that's subject to the basil requirements has already published their requirements. So we want to make sure that we understand what those requirements are as we're looking to frame our own proposal.
What's the timing on that you things?
So, as we're looking at all four of these pieces of capital in a comprehensive way, we want to make sure that we have proposals out that help us understand how they'll all work together, because we have overlapping, duplicative, and sometimes conflicting requirements within the existing capital framework. So BASIL three will probably be the last one that we propose or repropose, essentially, and we'll hope to have all of these initial proposals out early next year.
Back to where we started with crypto, you're looking at new global standards on bank crypto exposures that are supposed to come into effect at the beginning of the year. What do you anticipate there?
So those are Internet national standards, and the US is taking a different look. Obviously, Congress has spoken on how they see permissibility or allowable activity, and we want to make sure that what we're doing is appropriate for the United States.
Well, how does the timing fit with the international rules coming into effect, timing of what the FED and the other regulators in the US want to be telling banks.
Well, I think I sit on the JIHAS, which is the Heads of Supervision Committee for the BASLE, for the BASLE Committee, and that these are conversations that will be having going forward for the rest of the year.
And you know, I think time will tell.
We'll have you back and get the update on that. I did want to ask about the way the policy system works. We have three regulators in the US, most other countries have maybe one, and we shift the people in charge of it, as you mentioned here the third one here and Michael Barr, your predecessor, had a much more comprehensive buzzle three proposal. We're going to have a new FED chair in June of next year. Will all this change again? Oh?
I wouldn't think so.
Obviously, our board has to approve anything that we put forward as a regulatory proposal, so anything that we move forward will be broadly supported by the members of the board that are that are present at that time.
You've been on a FED for quite a while now almost seven years, almost seven years, and now you're in the supervisory role that you're really well qualified for.
Thank you.
You know you've been mentioned as a potential FED chair, But do you prefer this supervising me and regulatory side?
Well, right now, I'm committed to doing the job that I have and we've really hit the ground running with our with our requests for information on check fraud and other payments fraud with the SLR proposal that we just put out, the LFI rating system, we're taking a really hard look at our supervisory components and across our reserve banks as well as at the board to ensure that we're focused on material financial risk.
So I have a big agenda. We're moving through it quickly.
Obviously, we need to get the capital proposals completed in the near future. But you know, I'm really focused on the job that I'm doing, and I'm grateful to the President for appointing me and the Senate for confirming me to this role.
So that's what I'm focused on right now.
Well, sell Republicans on Capitol Hill have suggested that we should change this three headed regulatory system and maybe take regulation away from the FED. What are you telling them and what do you think the odds of something like that happening up?
Well, I think the most important part is to remember that we have a banking system that's a dual banking system, So we have national banks and we have state chartered banks, and the FDIC and the Federal Reserve oversee those state
chartered banks together with the state banking commissions. So I think think it's important that we maintain the ability to oversee both the state chartered banks and the occ with the national banks, and that we have a rational framework that is very similar for all of those banks going forward,
so there's not arbitrage between the three regulators. But Congress is obviously responsible for making any changes to that system, so you know, we'll be working closely with them to ensure that they understand what we're focused on and what we're doing that's supportive of the efforts of all of the agencies together.
So you come out to Jackson, but you also go up to Capitol Hill a lot.
I spent some time on on Capital l Absolutely.
Nicky Bowman, thank you very much for joining us today, the Vice Chair for Supervision at the Federal Reserve Board. We're here in Teetan Village, Yoming, and we'll send it back to you in New York, all right, Mike McKee, thanks very much for that. Bloomberg's Michael McKee and Fed Governor Michelle Bowman