Fed’s Bowman Asserts Need To Review Mismatch Between Financial Condition, Supervisory Ratings Of Large Financial Institutions

The Federal Reserve’s Vice Chair for Supervision, Michelle W. Bowman, said on Friday that the odd mismatch between financial condition and supervisory ratings of the largest financial institutions requires careful review and appropriate revisions to the current approach.

“Federal Reserve supervisory statistics show that two-thirds of the largest financial institutions in the U.S. were rated unsatisfactory in the first half of 2024. At the same time, the majority of these same institutions met all supervisory expectations for capital and liquidity,” she stated.

Bowman was speaking at the Georgetown University McDonough School of Business Psaros Center for Financial Markets and Policy, Washington, D.C. On Wednesday, she was confirmed by the U.S. Senate as the Fed’s Vice Chair for Supervision.

Bowman pointed out that the central bank will soon begin to address this mismatch by proposing changes to the Large Financial Institution ratings framework.

“The proposed changes will be designed to result in a more sensible approach to determining whether a firm is well-managed, no longer disproportionately weighting a single framework component for a firm that has demonstrated resilience under a range of conditions and stresses,” she said.

Bowman also pointed out that some of the regulations implemented in the immediate aftermath of the financial crisis led to pushing foundational banking activities out of the regulated banking system into less regulated corners of the financial system.

She said that the task of policymakers and regulators is not to eliminate risk from the banking system, but to ensure that risk is appropriately and effectively managed.

“Our goal should not be to prevent banks from failing or even eliminate the risk that they will. Our goal should be to make banks safe to fail, meaning that they can be allowed to fail without threatening to destabilize the rest of the banking system,” Bowman stated.

Meanwhile, President Donald Trump once again unleashed his criticism of the Federal Reserve, this time without explicitly calling out Chair Jerome Powell's name.

Trump also demanded a full percentage point rate cut and compared the rate action in Europe to highlight the urgency.

‘“Too Late” at the Fed is a disaster! Europe has had 10 rate cuts; we have had none. Despite him, our Country is doing great. Go for a full point, Rocket Fuel!,’ the U.S. President wrote on his Truth Social account on Friday.

U.S. benchmark indices rallied on Friday following the release of the jobs report, with the S&P 500 touching the 6,000 mark after three months. The SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500, traded 0.81% higher on Friday, while the Invesco QQQ Trust, Series 1 (QQQ), which tracks the Nasdaq Composite, was up 0.83%.

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