What Comments From Two Vice Chairs for Supervision Reveal About the Federal Reserve’s Regulatory Direction
Introduction
In back-to-back speeches just weeks apart, the former Vice Chair for Supervision Michael Barr and the current Vice Chair for Supervision Michelle Bowman offered sharply contrasting visions for how the Federal Reserve should regulate and supervise banks.
Although both emphasize the need for a responsive, adaptive regulatory framework, their perspectives diverge sharply on what went wrong in the past and what should happen next.
A Tale of Two Speeches: Comparing Barr and Bowman
Focus | Michael Barr (July 2025) | Michelle Bowman (June 2025) |
Core Message | Weakening regulation, whether deliberate or through neglect, sets the stage for crises. History shows this cycle repeats. | Regulatory overreach and misaligned supervision distract from real risk and stifle innovation. It’s time for a fresh, pragmatic reset. |
Historical Lens | Reviews the Great Depression, S&L crisis, and Global Financial Crisis as failures to maintain strong regulatory posture during booms. | Argues that post-crisis reforms (e.g., Dodd-Frank) were backward-looking and sometimes out of step with current risks. |
Supervisory Focus | Warns against easing during good times. Says complacency, politics, and short memory drive regulators to loosen when they should hold firm. | Criticizes supervision that focuses too much on checklists, process minutiae, and subjective judgments at the expense of actual financial risk. |
Ratings and Transparency | Implicit concern that systemic risks are downplayed during boom periods. | Explicit call to fix misaligned ratings systems (CAMELS, LFI) that rate banks poorly despite strong capital and liquidity. |
Capital Rules | Supports post-GFC capital reforms and warns against softening them without full analysis. | Advocates for recalibrating capital rules like the eSLR to reduce unintended market distortions, especially for low-risk activities. |
View of Innovation | Warns that poorly regulated innovation (e.g., OTC derivatives) helped cause past crises. | Encourages regulatory clarity to support bank innovation in AI, digital assets, and third-party services. |
Despite these differences, both leaders stress one important point: regulation must evolve, and neither rigidity nor neglect serves the public interest.
What This Means for Community Banks
For Community Banks (CBs), this changing narrative is more than philosophical. It has practical implications that tie directly to three areas of regulatory scrutiny that iKinetiq tracks closely:
1. Supervision Drift: A Rising Risk
Bowman’s speech directly confronts the supervision drift we’ve seen in our Enforcement Actions analysis where we found CBs are penalized for process failures even when capital and liquidity are sound. Her critique of ratings misalignment and excessive horizontal reviews supports what we’ve seen in Enforcement Actions: a supervisory framework that prioritizes documentation over meaningful analysis of real risks.
"Ratings must reflect risk... supervisory box-checking can be a distraction from the core purpose." — Gov. Bowman
2. Tailored Supervision for Community Banks
Bowman explicitly calls for a separate supervisory framework for CBs and criticizes the spillover of large-bank standards. Bowman’s call directly acknowledges what our CB clients have felt for years - - being held to large-bank standards without the resources those large banks have.
For CBs, a Bowman-led framework could result in less burdensome expectations, more room for risk-aligned innovation, and exam outcomes right-sized to real risks.
3. Evolving the Capital Narrative
Barr views capital reforms like Dodd-Frank as necessary firewalls. Bowman, however, questions whether capital rules are distorting behavior or unintentionally penalizing low-risk lending (e.g., Treasury intermediation).
For CBs already thinly staffed, unclear or over-calibrated capital expectations add to compliance fatigue. Our Enforcement Actions dataset shows how capital-related Corrective Actions often stem from legacy expectations poorly matched to CB risk profiles.
Bottom Line
This transition from Barr’s historically grounded caution to Bowman’s forward-looking pragmatism reflects a philosophical tug-of-war at the Fed. For Community Banks, the outcome could shape:
- How exams are scored
- Which risks are prioritized
- How capital and third-party expectations evolve, and,
- Whether innovation is enabled or suffocated
You don’t have to choose sides, but you do need to prepare. Whether Bowman’s approach brings meaningful change or not, the supervisory shift is already in motion. And for those CBs recently under the examiner microscope? The direct connection between these speech themes and Enforcement Actions findings couldn’t be clearer.
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