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In particular, Bowman's announcement that the Fed will host a conference next month to discuss the various components of its capital framework has been greeted as a sign of a more collaborative and deliberative approach than the one taken by regulators under the Biden administration.
"We will bring together bankers, academics, and other capital experts to examine whether capital requirements as currently structured and calibrated are operating as intended — in a complementary fashion," Bowman said last week. "I welcome the opportunity to consider a broader range of perspectives as we look to the future of capital framework reforms."
David Zaring, a law professor at the University of Pennsylvania's Wharton School of Business, said Bowman seems to be setting up for something akin to a negotiated rulemaking — also known as "reg-neg" approach — in which agencies attempt to address potential issues through direct engagement with stakeholders before a proposal is formally introduced.
The tactic has been used with varying degrees of effectiveness in historically more litigated regulatory fields, including education and environmental protection. Zaring said the idea is to reach a consensus on the main thrust of a rule change then use the notice-and-comment process for fine-tuning. He added this would be a significant change from the 2023 Basel endgame proposal.
"I thought the prior approach was to … come up with a bunch of ideas that might be implemented ideally and then, through the rulemaking process, get sufficient pull back to trim the most politically unpalatable parts of the rule down. That seemed to be the gambit," he said. "That's very much not what a reg-neg approach looks like."
Earlier this year, Fed Chair Jerome Powell told the Senate Banking Committee that regulators could finalize a Basel III endgame implementation "fairly quickly," noting that the agencies had already put substantial work into an amended version of the 2023 proposal. Previous Vice Chair for Supervision Michael Barr
Bowman's comments suggest an entirely new approach to international risk-capital standards, one that is carried out alongside changes to large bank stress testing, leverage ratios and capital surcharge applied to the nation's largest banks. Like Quarles, her goal is to carry out these changes without increasing aggregate capital requirements on large banks.
While the Fed, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency will likely draw from the voluminous public feedback from 2023, Alison Hashmall, a partner at the law firm Freshfields Bruckhaus Deringer, said she expects regulators to launch a totally new process, including a new request for information from affected banks.
Hashmall said one of the critical errors of the previous batch of regulators was initiating a data collection process after putting the rule out for comment.
"That made it impossible to do a proper, data-driven cost-benefit analysis and, ultimately, the pushback on that caused an insurmountable delay in the rulemaking process," she said. "Having that dialogue early in the process is critical."
Bowman has long championed the importance of cost-benefit analysis. The subject featured prominently in a speech on "
But matters of process are not the only lessons to be learned from Bowman's predecessors. There are also matters of timing and institutional capacity.
"Four years is both a lot of time and not that much time," said Chen Xu, a financial regulation lawyer at the law firm Debevoise & Plimpton.
In his farewell address in December 2021, then-Vice Chair for Supervision Randal Quarles listed Basel finalization as a key piece of business that he would have to leave unfinished because of his term limit. He pointed to the sudden onset of the COVID-19 pandemic as an unsurmountable hurdle in his efforts to complete the implementation.
"I had hoped that the U.S. would have led the world in setting out a concrete proposal to implement the Basel III endgame by the end of last year," Quarles said. "But the intervention of COVID set back that timetable, and although we are working hard with the other banking agencies to iron out the last issues, our proposal will have to come after my departure."
Barr faced his own time- and attention-sucking incidents, including the failure of Silicon Valley Bank in March 2023 and the ensuing crisis among similarly sized institutions. Coupled with a late arrival to the Federal Reserve Board — President Joe Biden's
Bowman, on the other hand, has been installed as the Fed's chief regulator earlier in this administration than Barr or Quarles during their respective terms. She also has a long tenure at the Fed under her belt and shared objectives with the heads of other regulatory agencies. All of this bodes well for her ability to accomplish her full agenda, Xu said.
"She definitely has enough time to get what she wants done," he said. "I want to be cautiously optimistic here — who knows what politics can bring — but it seems like all the agencies are heading in the same direction. They're not rowing against each other as they were."
