ATLANTA — Federal Reserve Vice Chair for Supervision Michelle Bowman said Thursday the central bank is recalibrating both capital and supervisory frameworks in ways she argued will better support economic growth, mortgage lending and community banking, while maintaining safety and soundness.
Speaking via pre-recorded video at the 2026 Banking Outlook Conference hosted by the Federal Reserve Bank of Atlanta, Bowman outlined regulatory changes that could directly affect lending capacity, capital planning and merger activity across the banking sector.
Bowman said the Fed is advancing a more clearly articulated risk-based approach to supervision, particularly for community banks. That includes reviewing merger and acquisition and de novo chartering processes with an eye toward streamlining applications and updating competitive analysis for smaller institutions. She also pointed to proposed changes to the community bank leverage ratio designed to provide “greater flexibility while maintaining strict capital standards nearly double the minimum capital requirements,” as well as a forthcoming review of the mutual bank capital framework. The changes, she said, are intended to allow community banks to focus on lending to households and businesses, including in rural markets.
For large institutions, Bowman said regulators are modernizing the four pillars of the capital framework — stress testing, the supplementary leverage ratio, Basel III implementation and the G-SIB surcharge. She said the Fed’s latest stress testing proposal increases transparency by disclosing models and scenarios, with the goal of reducing volatility and giving banks clearer insight into capital expectations. Revisions to the enhanced supplementary leverage ratio, finalized with the OCC and FDIC, are meant to ensure leverage requirements act as a backstop and do not constrain low-risk activities such as holding U.S. Treasuries.
On Basel III, Bowman said finalizing the U.S. framework will reduce uncertainty and provide clarity for capital standards, enabling banks to make more informed business decisions. She emphasized adjustments to the capital treatment of mortgages and mortgage servicing, arguing that the prior framework reduced bank participation in mortgage lending and limited access to credit. Changes under consideration, she said, are designed to support market liquidity, affordable homeownership and overall bank safety and soundness. Regulators are also refining the G-SIB surcharge to balance resilience with economic growth.
Bowman also signaled a shift in supervisory tone. She said the Fed has instructed examiners to prioritize “core and material financial risks to safety and soundness” rather than focusing heavily on documentation and minor procedural gaps. The agency has begun a comprehensive review of all outstanding safety and soundness matters requiring attention, with plans to downgrade findings that do not meet material risk standards to nonbinding supervisory observations by the end of June. While emphasizing a move away from what she described as siloed compliance exercises, Bowman said cybersecurity and other nonfinancial risks remain a top priority.