Fed’s Bowman Signals Looser Bank Capital Rules in Policy Shift

Federal Reserve Vice Chair for Supervision Michelle Bowman has outlined a more flexible approach to bank capital regulation, signaling potential changes that could ease some requirements for lenders. Bowman said existing rules can sometimes constrain banks’ ability to extend credit and should better reflect the actual risk profiles of bank assets.

Her remarks come as U.S. regulators work toward a revised proposal for the Basel III “endgame” capital framework. The Federal Reserve is aiming to release a re‑proposed version of the rules by the end of the current quarter, and Bowman indicated that it could differ significantly from the stricter proposal introduced in 2023 that drew criticism from the banking industry.

According to Bowman, aligning capital requirements more closely with real portfolio risks could encourage banks to play a larger role in key lending markets, including mortgages. She noted that banks hold substantial volumes of low loan‑to‑value mortgages, suggesting that existing capital treatment may overstate their risk and discourage on‑balance‑sheet lending.

Regulators are seeking to maintain the resilience of the banking system while improving the efficiency of credit markets. A recalibrated capital framework could simplify regulatory requirements and potentially increase banks’ capacity to provide financing to households and businesses.