Bowman says Fed will widen stress test use and finish reforms within weeks
Bowman says the changes will make bank capital requirements more stable and points to supervisory failures at SVB
Published
Federal Reserve Vice Chair for Supervision Michelle Bowman says the central bank will use stress tests more widely to keep supervisors current on risks building up at banks. She says the Fed will finish reforms meant to make the tests more transparent and accountable within the next few weeks.
Bowman says the updated tests will give supervisors clearer insight into the models and scenarios behind them. She expects the Fed to also complete Basel capital rules and adjustments to the surcharge on globally systemic banks by the end of the year.
Bowman says the changes will make the tests more reliable and reduce swings in bank capital requirements from year to year. She says supervisors did not act quickly enough to force Silicon Valley Bank to lower its risks before it collapsed in 2023.
The reforms target the kind of supervisory gaps Bowman says showed up at SVB, but they do not change the near-term outlook for monetary policy. Inflation remains elevated, and traders are still pricing in further rate hikes through 2026, which keeps bank oversight changes secondary to the Fed's current focus on fighting inflation.