Democratic Senators Question Changes at the Federal Reserve
Several Democratic senators, including Sen. Elizabeth Warren, raised concerns regarding recent changes at the Federal Reserve in two separate letters addressed to Vice Chair for Supervision Michelle Bowman. The letters highlighted Bowman’s alleged removal of bank examiners and the initiation of a new review of Silicon Valley Bank’s 2023 failure.
Bank Examiner Removals
The senators emphasized the importance of allowing examiners to assess banks’ safety, soundness, and compliance without bias. They referenced a report by the Wall Street Journal that suggested examiners were sidelined following complaints from bank executives. Some examiners reportedly interpreted Bowman’s actions as discouraging them from being stringent in their oversight of banks.
If the reports are accurate, the senators expressed concern that removing examiners at the behest of banks could compromise the integrity of the examination process and create a chilling effect within the examiner workforce.
Organizational Changes at the Federal Reserve
Bowman announced a significant 30% reduction in headcount within the Fed’s supervision and regulation arm, aiming to streamline the organizational structure and management layers. These cuts are part of a broader Fed-wide plan to reduce headcount by 10% by 2027. Additionally, the Fed introduced major revisions to the bank supervision process in October.
The senators criticized these actions, warning that the combination of staff reductions and regulatory changes could expose the banking system to increased risks of financial crises, potentially impacting American families.
Review of Silicon Valley Bank’s Failure
Another letter penned by the senators questioned Bowman’s decision to hire an external consultant to re-examine SVB’s failure, despite her predecessor attributing it to mismanagement. The senators raised concerns that the review could be an attempt to shift blame away from previous decisions that weakened bank oversight.
Bowman’s predecessor, Michael Barr, had previously stated that SVB’s failure was a result of mismanagement and delayed supervisory actions by the Fed.
Conclusion
The senators’ inquiries come amidst ongoing discussions about Fed independence, particularly in light of past criticisms from former President Trump and recent controversies surrounding central bank personnel. The resignation of Stephen Miran, who held dual roles at the Fed and the White House, further adds to the scrutiny on central bank governance.
The Federal Reserve did not provide a response to the senators’ letters at the time of publication, with the senators requesting a reply by Feb. 25.
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