- Key insight: The proposed changes to capital rules reduces risk-weighting on bank assets to make credit more affordable for small businesses.
- What's at stake: The Fed wants banks to align capital rules with actual risks for small-business credit cards while also addressing rising fraud.
- Forward look: Bowman said a third-party analysis of the Silicon Valley Bank failure is in the works to ensure lessons are learned from past supervisory failures.
SAN DIEGO — Federal Reserve Vice Chair for Supervision Michele Bowman said the central bank's
On Tuesday, Bowman told a group of consumer bankers that the Fed is making regulatory moves to ensure that a critical pipeline of funding remains open to small businesses even as credit conditions remain tight. She zeroed in on the role of small businesses in employing 59 million Americans and hauling in $6 trillion in revenue in 2023.
By reducing the risk-weighting on bank assets under the Basel III framework, the proposed capital change is designed to make credit readily available and more affordable. Community and smaller regional banks currently hold $600 billion in business loans of $1 million or less, she said. The framework, developed by the Basel Committee on Banking Supervision, was created after the 2008 financial crisis to ensure that banks could absorb shocks from financial and economic stress. Under the second Trump administration, the Fed is substantially reducing capital requirements for banks, in a significant rollback of regulations.
"Even with the support of the banking industry, credit conditions for these businesses remain tight," Bowman told a group of bankers at the Consumer Bankers Association's annual conference. "This means that banks are applying a more stringent approach to credit approval and to lending conditions."
The Fed's regulatory shift seeks to "allow banks to be banks" by recalibrating risk weights and reducing administrative costs. Still, economic uncertainty remains the dominant reason for cautious lending by banks that has been compounded by the Iran war, rising oil prices and higher inflation.
Separately, during a Q&A with CBA President and CEO Lindsey Johnson, Bowman said the Fed is planning to revise Regulation O, which governs how banks extend credit to their own "insiders," such as executive officers, directors and principal shareholders. The regulation exists to ensure that insiders do not receive preferential treatment — like lower interest rates or more relaxed lending standards — simply because of their position within the bank. The use of AI by financial firms also will get scrutiny.
"Going forward, we're looking at asset thresholds. We're going to be revisiting Regulation O," she said, adding that the Fed is also going to "take stock on how other jurisdictions are looking at AI."
The Fed also is doing a third-party analysis of Silicon Valley Bank's failure in 2023. She said any lessons learned will be crucial for guiding future supervisory updates.
"We're doing an analysis of the failure of Silicon Valley Bank so that we can make sure that we're learning the lessons of our supervisory failures from the last crisis," she said. "That allows us to ensure that we're focusing on the right risks that keep that similar experience from occurring."
Written into the Fed's capital proposals is that banks with more than $100 billion in assets "would be required to consider AOCI or integrate that into their balance sheets," she said, referring to
Most of Bowman's comments focused on how banks continue to maintain a cautious stance to small-business lending, often applying more stringent credit-approval processes and increased collateral requirements to mitigate perceived risks.
She cited data from the Federal Reserve Bank of Kansas City that found 9% of banks reported tightening credit standards for commercial and industrial loans to small firms in the third quarter of 2025.
"Among banks that reported having tightening standards, 83% cited economic uncertainty as a reason for tightening," she said. "Given the vital role of small businesses in the U.S. economy, ensuring the availability of credit to support them is critical for a healthy labor market and for economic growth."
The Kansas City Fed's survey found that "stronger lending could be encouraged by a number of policy considerations including lower interest rates and a friendlier approach to technology adoption, tax policy and banking regulations," Bowman said.
The Fed is working to align regulatory capital treatment with actual risks especially for small-business credit cards and mortgage origination. During the Q&A, Bowman stressed the need to encourage banks
"What we recognized following the financial crisis was that we made it very, very difficult for banks to engage in mortgage origination and mortgage servicing," she said. "The way that we approached this proposal was to ensure that we could include banks back into that business offering, so that we're keeping more activity within the regulated banking space."
Finally, Bowman said rising fraud is a major concern for both banks and consumers. The Fed has an ongoing collaboration with the Treasury Department to host roundtable discussions with banks to develop better reimbursement frameworks for check fraud and other strategies.
