Federal Reserve's Michelle Bowman Proposes Overhaul of U.S. Banking Regulations

In her inaugural address as the Federal Reserve's Vice Chair for Supervision on June 6, 2025, Michelle Bowman unveiled an ambitious plan to overhaul U.S. banking regulations. She criticized the complexity and costliness of post-2008 financial crisis rules, proposing significant reforms aimed at streamlining oversight and fostering economic growth.

Bowman highlighted that many existing regulations have driven key banking activities into less regulated sectors of the financial system. She emphasized the need to reassess these measures over a decade after their implementation, suggesting that current rules discourage low-risk activities and stifle economic growth by raising costs for consumers and businesses.

Central to her proposals is the revision of the Federal Reserve's supervisory ratings system, which she described as overly subjective and punitive, particularly toward large banks that meet capital and liquidity requirements but still receive unsatisfactory ratings. Bowman advocated for reducing the weight of subjective assessments to create a more objective evaluation process.

Additionally, she called for a reassessment of capital requirements, including leverage rules affecting low-risk assets like U.S. Treasury debt. Bowman argued that current regulations may unnecessarily constrain banking activities and proposed increasing transparency in the Federal Reserve's stress testing program to better assess banks' resilience to economic shocks.

Bowman also suggested revisiting global capital surcharges and the implementation of Basel III reforms to ensure they are appropriately calibrated and do not impose undue burdens on banks. She proposed creating a separate regulatory framework for small banks and revisiting outdated asset thresholds to align regulatory intensity with economic growth and inflation.

Her agenda aligns with the broader deregulatory stance of the Trump administration, which has sought to reduce regulatory burdens to promote economic growth. This approach has been welcomed by banking industry groups that have long advocated for more tailored and less onerous regulations.

However, critics argue that easing regulations could increase systemic risk and potentially lead to financial instability. The 2008 financial crisis was, in part, attributed to insufficient regulatory oversight, leading to the implementation of stringent rules aimed at preventing a recurrence. Bowman's proposals to revise these rules will likely reignite debates over the balance between regulatory oversight and economic growth.

Bowman's address comes shortly after the Federal Reserve lifted a $1.95 trillion asset cap on Wells Fargo, imposed in 2018 following a major sales practices scandal. This decision allows the bank to expand its assets and pursue growth strategies more freely, signaling a potential shift toward a more lenient regulatory environment.

The lifting of the asset cap has been met with mixed reactions. While many analysts and investors welcomed the move, citing leadership changes and regulatory improvements under CEO Charlie Scharf, Senator Elizabeth Warren criticized the Fed’s decision, arguing the bank has not sufficiently reformed and highlighting recent violations.

Bowman's agenda represents a significant potential shift in the Federal Reserve's regulatory approach, with far-reaching implications for the banking industry and the economy at large. As these proposals move forward, they are likely to spark extensive discussions on the appropriate balance between regulatory oversight and economic growth.