Author: Zhao Yuhe, Wall Street Journal
Michelle Bowman, one of the candidates for the next Federal Reserve Chair and a Federal Reserve Governor primarily responsible for bank supervision, told the media on Tuesday that she is currently focused on her current regulatory responsibilities, including pushing for changes to large bank capital rules and combating so-called "debanking."
In response to outside attention on whether she is interested in succeeding the Fed Chair, Bowman avoided the question, saying she is "focused on current work."
She reiterated her support for interest rate cuts and explicitly called on the banking industry and regulators to actively embrace emerging technologies such as artificial intelligence, blockchain, and cryptocurrency, otherwise the banking system may be marginalized in the future economy. Bowman said she is currently focused on her current supervisory responsibilities, including pushing for changes to capital rules for large banks and combating so-called debanking. "I have a large work program, and we are moving rapidly forward, and it's clear that we need to finalize our proposals for bank capital reform in the near term," Bowman said. When asked if she was interested in serving as Fed chair (rather than her current role as vice chair of supervision), Bowman did not respond directly. Media reports indicate that she is being considered by President Trump as a candidate for Fed chair. "I'm really just focused on the job I'm doing right now." She said the Fed is reviewing several capital rules and plans to re-propose some key measures, but these proposals will not change regardless of whether the chairman changes. Bowman has launched work on a new capital rule that will be risk-based and less burdensome for large U.S. banks than the version under the Biden administration. According to media reports, regulators are largely abandoning the 1,087-page version proposed two years ago and plan to announce the new plan as early as the first quarter of 2026. The latest plan was reportedly inspired by a comprehensive review of bank capital rules held by Bowman in July. The review aims to ensure that overall capital requirements are consistent with other proposals being considered by officials, such as relaxing the key leverage ratio rule. She said regulators are awaiting public feedback on their proposal, which could reduce capital requirements for large bank subsidiaries by as much as 27%. The comment period closes on August 26. Seeking to Reduce Supervisory Scrutiny of "Reputational Risk" The Federal Reserve, under pressure from banking groups and Republican lawmakers to end the unfair practice, had previously pledged that its examiners would no longer consider "reputational risk" in bank reviews. In a separate speech the same day, Bowman said she would seek to reduce supervisory scrutiny of "reputational risk" and hinted at the possibility of new rules. The Federal Reserve and other bank regulators, under pressure from some banking groups and Republican lawmakers, had previously pledged that their examiners would no longer consider "reputational risk" in bank reviews. Critics called that practice unfair. Trump has been critical of "debanking," the practice of depriving certain individuals and businesses of banking services for ideological reasons. Some consumer advocates, however, believe the issue is overblown and question whether there is any evidence that bank regulators have ever forced banks to stop serving specific customers solely for ideological reasons. Earlier this month, Trump signed an executive order requiring bank regulators to remove references to "reputational risk" from guidance and training materials and to identify banks that illegally deny financial services to customers. The order came after he claimed that banks had denied service in the past due to discrimination. Bowman also reiterated her support for rate cuts on Tuesday, saying her views had not changed even after disagreeing with other members of the Federal Reserve Board in July. "My position is known to the public, and that's it. I haven't changed my mind." At the July meeting, the FOMC voted to maintain interest rates at 4.25% to 4.5%. Bowman, along with Christopher Waller, became the first pair of Fed governors in 30 years to dissent against the majority. This dissent followed intense pressure from the White House over the past few months on the Fed to cut interest rates. Media reports indicate that the resignation of Fed board member Adriana Kugler earlier this month was also seen as part of this pressure campaign. President Trump subsequently appointed Stephen Miran, chairman of the White House Council of Economic Advisers, to replace her. Many analysts believe Miran will be more responsive to Trump's monetary policy stance, particularly on interest rate cuts. The futures market is currently pricing in a 25 basis point rate cut in September, but market uncertainty is greater than usual. The CME Group's "FedWatch" forecasting algorithm shows an 83% probability of a rate cut next month. Typically, the algorithm's predictions differ from the consensus by only a few percentage points. Calling for banks and regulators to change their attitudes toward cryptocurrencies and AI Bowman also spoke at the Wyoming Blockchain Symposium on Tuesday, saying the banking industry and regulators must embrace the benefits of new technologies like artificial intelligence and cryptocurrencies or risk their role in the economy diminishing. Ideally, she said, regulators should allow these new uses to "expand in a way that benefits the banking system." "Change is coming. If we don't take this approach, we risk making the banking system irrelevant to consumers, businesses and the economy as a whole." She called on the banking industry to help regulators better understand blockchain and digital assets, and the potential of new technologies to tackle problems such as fraud. "I also want to encourage greater interaction between the industry and regulators to help us understand blockchain and its potential to solve other problems. I am committed to changing our attitude and culture towards the acceptance and integration of technologies, new products and services." Calling for Federal Reserve staff to be allowed to hold small amounts of cryptocurrency products Bowman also said that Federal Reserve employees should be allowed to hold small amounts of cryptocurrency products, arguing that practical experience will help employees better understand and supervise activities in these financial markets, and relaxing employee investment restrictions will also help attract and retain bank examiners with professional skills. She pointed out that allowing employees to hold "de minimis" amounts of cryptocurrencies and other digital assets will help them build a practical understanding of these products.
"Nothing can replace personal experience and understanding the process of holding and transferring these assets. I certainly wouldn't trust someone who has never worn skis to teach me how to ski - no matter how many books he has read or even how many articles he has written."
Bowman did not specify the amount or type of assets she was referring to, but analysts believe that her statement once again shows that regulators under the Trump administration have a more friendly attitude towards the crypto industry. Previously, after requiring banks to cross numerous review thresholds before entering this field for a long time, the Federal Reserve and other banking regulators have taken a number of measures to relax restrictions on banks engaging in crypto business.
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