Bowman continues opposition to mandatory discount window pledges

Federal Reserve Gov. Michelle Bowman speaks May 9 during the Nebraska Bankers Association annual conference in Omaha. Bowman’s nearly hourlong speech focused on her opposition to recently unveiled regulations and the broader approach of regulators in Washington, D.C.

Federal Reserve Gov. Michelle Bowman reiterated her opposition to mandatory Federal Reserve discount window pledges last week during the Nebraska Bankers Association’s annual conference in Omaha. 

Bowman’s May 9 comments came as the FDIC, Federal Reserve and Office of the Comptroller of the Currency are working on a plan to require banks to use the facility at least once a year to reduce the stigma for potential users following a series of high-profile bank failures in spring 2023. Last July, the FDIC, Federal Reserve, OCC and National Credit Union Administration advised banks to incorporate the discount window into contingency funding plans and ensure sufficient available collateral to cover potential funding needs. 

Bowman said the discount window must be shown to work before requiring banks to utilize the option, which is commonly seen as a last resort. She said it can take up to four months for institutions to place collateral. Regulators should instead focus on more basic supervisory tasks to ensure the stability of the financial system, Bowman added. 

Speaking in early April at a business roundtable, Bowman said mandating use of the discount window will not ease the stigma of using the program and could create more drawbacks than benefits. She said mandatory use of the discount window will make it harder to manage daily liquidity needs while failing to address existing operational and technical shortcomings.

The Federal Reserve didn’t work closely enough with its San Francisco field office leading up to Silicon Valley Bank’s failure on March 10, 2023, to hold the bank accountable for not having a chief risk officer despite turbulence in the venture capital market, she added. Bowman also criticized regulators for shuttering SVB on a Friday morning, citing the decision as a reason for the failure of Signature Bank two days later. 

“If they had enabled Silicon Valley Bank to continue operating until the end of the day on Friday, we wouldn’t have had the spectacle that it was and we would have had time over the weekend to try to find ways, as the FDIC has historically done, to continue to address the issue,” Bowman added. “And ultimately I think it would have at least lessened — if not stemmed — the bank runs that it precipitated.” 

Bowman, a former community banker who served as Kansas banking commissioner from 2017-18, struck a friendly tone with the hundreds of community bankers in the room during her nearly hourlong address. She contrasted herself with fellow bank regulators whom she deems as being too ideologically driven and out-of-touch with the banking world to effectively regulate the industry.

Bowman, whose term lasts until 2034, said the industry faces a “tsunami” of new regulation while supervisors should instead focus on the basics of supervision. She criticized what she sees as a lack of transparency in recent updates to the Community Reinvestment Act and a proposed hike in capital standards. Bowman is also opposed to the Fed’s plan to lower debit card interchange fees, and predicted banks’ free education services through BankOn will be harmed by regulatory crackdowns on “junk fees.”