Federal Reserve Vice Chair for Supervision Michelle Bowman announced plans to reorganize U.S. bank supervision into five geographic regions led by regional leaders. The central bank also plans to review fixed asset thresholds that determine when banks face stricter capital, liquidity and stress-testing requirements.

Key Takeaways

• The Federal Reserve plans to establish five geographic regions for bank supervision.
• Each region will have a designated leader overseeing supervisory activity.
• Regional Reserve Bank staff will continue conducting bank examinations.
• Bowman plans to begin interviewing candidates for regional leadership positions early next year.
• The Fed will consider updating fixed-dollar asset thresholds and potentially adjusting them every five years for inflation and economic growth.

Federal Reserve Plans Five Regional Bank Supervision Areas

The Federal Reserve plans to replace its existing bank-supervision structure with five geographic regions, according to the plan announced by Bowman. Each region will have a regional leader responsible for overseeing supervisory activity.

The proposed structure changes the organization of responsibility rather than removing the regional Reserve Banks from the examination process. Staff at those Reserve Banks will continue conducting supervision of banks under the new arrangement.

The five-region model is intended to establish a clearer line of responsibility for supervisory decisions. Bowman said the Federal Reserve’s supervisory function will be realigned around accountability and clear decision-making authority.

The restructuring follows concerns about the way responsibilities are divided under the current arrangement. Federal Reserve officials in Washington currently establish bank examination policy, while supervision is carried out through the central bank’s 12 regional Reserve Banks.

Recent lending data have also shown that bank credit remains an important part of the U.S. financing system, including for financial institutions operating outside traditional deposit-taking banks. That relationship is examined in recent analysis of bank lending standards.

Under the proposed model, regional leaders will have responsibility for supervisory activity within their assigned areas. The change therefore creates a new layer of regional leadership while retaining examination staff at the regional Reserve Banks.

Regional Leaders to Oversee Supervisory Activity

The Federal Reserve plans to appoint leaders for each of the five new regions. Bowman said interviews for those positions are expected to begin early next year.

The regional leaders will oversee supervisory activity conducted by Reserve Bank staff. Their responsibilities will include providing leadership over the supervisory work performed within their respective regions.

The planned appointments create a defined leadership structure between the Federal Reserve’s Washington-based supervisory function and examination staff operating through the regional Reserve Banks.

The existing system divides supervisory work across the Federal Reserve’s 12 districts. The proposed five-region structure will consolidate those geographic responsibilities under fewer regional leaders.

The examination function itself will remain regional. Reserve Bank personnel will continue carrying out bank supervision, while the new leaders will provide oversight for the work within each region.

Bowman’s announcement also establishes a future timeline for the organizational change. The leadership selection process is expected to begin with interviews early next year rather than immediately changing the personnel responsible for each region.

Federal Reserve policy decisions have also remained closely watched by businesses and financial professionals. Earlier reporting on Fed rate hike expectations provides additional context on the central bank’s broader policy environment.

Fed Seeks Clearer Accountability in Bank Examinations

The Federal Reserve’s proposed structure is tied to Bowman’s concerns about accountability within bank supervision. She said the current arrangement can weaken the connection between responsibility and accountability when supervisory concerns arise.

Bowman also criticized the Federal Reserve’s use of committees in the supervision process. She said committees could delay decisions and make responsibilities less clear among central bank staff.

The proposed structure is designed to give regional leaders clearer responsibility for supervisory activity. That would establish a more direct chain of authority for the work carried out by regional examination teams.

The issue of supervisory accountability is also connected to the Federal Reserve’s review of its handling of bank risks. The proposed reorganization follows an independent review of the collapse of Silicon Valley Bank that examined the actions of Federal Reserve examiners.

That review found that Fed examiners had been slow to take action, according to Bowman’s remarks. The finding has informed the discussion around clearer supervisory responsibility.

Under the new arrangement, regional leaders would oversee the supervisory activity performed by Reserve Bank staff. The change therefore addresses the organizational structure surrounding examinations rather than replacing the regional examination workforce.

The Federal Reserve’s plan also seeks to streamline decision-making. Bowman’s criticism of committee structures focuses on the allocation of responsibility when examiners identify risks at banks.

The central bank has undertaken other reviews of its institutional framework. A separate Federal Reserve review has involved changes to the central bank’s policy framework, although that work concerns monetary-policy operations rather than bank supervision.

Asset Thresholds Face Potential Regulatory Updates

The Federal Reserve also plans to consider changes to fixed-dollar asset thresholds that determine when banks become subject to stricter regulatory requirements.

Those thresholds can affect requirements involving capital, liquidity and stress testing. The Fed is considering a mechanism that would update fixed-dollar thresholds every five years to account for inflation and economic growth.

The proposed approach would change how asset thresholds are maintained over time. Fixed dollar amounts can become less reflective of changes in the size of the economy as prices and economic activity increase.

Banks have argued that fixed asset thresholds can eventually apply stricter requirements to institutions that have grown with the broader economy but have not necessarily changed in the ways originally targeted by enhanced supervision.

The Federal Reserve’s review therefore covers both the level of the thresholds and the possibility of establishing a recurring adjustment process.

Bowman said the Fed would consider the updated thresholds later this year. The proposal does not itself change the thresholds immediately.

The asset-threshold review is separate from the creation of the five geographic supervision regions, but both initiatives concern the structure through which the Federal Reserve oversees banks.

The threshold system determines when additional regulatory requirements can apply based on a bank’s assets. The proposed review would examine whether those fixed levels remain appropriate and whether they should be adjusted periodically.

New Supervisory Structure Moves Toward Implementation

The proposed five-region structure will require the Federal Reserve to establish the new regional leadership positions before the arrangement is fully implemented. Bowman said the central bank expects to begin interviewing candidates early next year.

Regional Reserve Bank staff will continue performing supervisory work under the planned structure. The principal organizational change is the creation of five regional leaders with responsibility for overseeing that activity.

The Federal Reserve will also consider changes to the asset thresholds later this year. A five-year adjustment mechanism tied to inflation and economic growth is among the approaches under consideration.

The two changes affect different parts of U.S. bank regulation. The regional restructuring addresses supervisory organization and accountability, while the threshold review concerns the regulatory requirements that can apply as banks grow.

The planned changes also preserve the role of the Federal Reserve’s regional banks in conducting examinations. The new leadership structure is intended to provide a different allocation of responsibility for that work.

The timing of the proposals means that the supervisory leadership process and the asset-threshold review will develop on separate timelines. Regional leadership interviews are expected to begin early next year, while the Fed plans to consider the threshold changes later this year.

The proposed five-region system therefore represents an organizational change that will be implemented through new regional leadership, while the asset-threshold review could alter the criteria used to determine when banks face stricter regulatory requirements.

Frequently Asked Questions

What is the Federal Reserve’s new bank supervision structure?

The Federal Reserve plans to organize bank supervision into five geographic regions. Each region will be led by a regional leader responsible for overseeing supervisory activity conducted by regional Reserve Bank staff.

How many regions will the Fed use for bank supervision?

The proposed structure includes five geographic regions. The current system uses the Federal Reserve’s 12 regional Reserve Banks to conduct bank supervision.

Who will oversee the new Federal Reserve supervision regions?

Each of the five regions will have a designated regional leader. Michelle Bowman said the Federal Reserve plans to begin interviewing candidates for those positions early next year.

Will regional Reserve Banks continue conducting bank examinations?

Yes. The proposed restructuring does not remove regional Reserve Bank staff from the examination process. Those staff members will continue conducting supervisory activity under the new regional leadership structure.

Are Federal Reserve bank asset thresholds changing?

The Federal Reserve plans to consider updates to fixed-dollar asset thresholds later this year. The central bank is also considering a mechanism that would adjust those thresholds every five years for inflation and economic growth.