On October 6, the Fed’s vice chair for supervision, Michelle Bowman, announced that the Fed is beginning to restructure its supervision function, initially realigning it into five regions. The new structure is informed by the regional model used by CSBS and is intended to establish “a culture of accountability and clear decisionmaking authority.” Each region will be led by a regional leader accountable for all supervisory activity in that region. The regions will be supported by existing Reserve Bank footprints but aligned with state boundaries rather than Reserve Bank district lines. Bowman said the change is meant to: (i) address a long-standing mismatch between decision-making authority and accountability, which a preliminary report from an independent review of a bank failure highlighted last month (covered by InfoBytes here); (ii) improve coordination with state and federal regulators; and (iii) simplify the leadership structure while creating scale and more consistent supervision. The vice chair said that examiners will stay in their current Reserve Bank locations and continue overseeing the banks they now supervise. She also criticized the Fed’s past reliance on a “complex web of committees,” saying the committees delayed action, obscured accountability and became a source of “plausible deniability” that discouraged examiners from acting promptly on identified risks. Bowman called improving the use of committees an important first step but said broader changes are needed.

The vice chair also previewed two actions the Fed will consider later this year. The first would raise fixed-dollar asset thresholds in the Fed’s regulations to account for inflation and economic growth, with a mechanism to update them every five years. The second involves broader structural reforms to asset-size-based bank categories, including expanding the range of institutions treated as community banks, alongside updates to the large bank tailoring framework. According to Bowman, community banks have been defined for the past 15 years as those with less than $10 billion in assets. Bowman said fixed thresholds can push smaller, noncomplex banks into supervisory tiers designed for more complex firms. She also noted that the FFIEC is working to finalize revisions to the CAMELS rating system so that the management rating will no longer singularly drive a bank’s composite rating.