Background

A US Federal Reserve official called on Sunday during a seminar in Austria for an “impartial and independent” investigation into the failures of several US banks earlier in the year, rejecting proposals to increase the capital of banking institutions.

The Investigative Report

Michelle Bowman, a member of the US Federal Reserve Board of Governors, said the investigative report, which was released in late April and prepared by Reserve Banking Supervisory Vice President Michael Barr, “was not noticed by the rest.” members of the Council before its publication.

Divisions within the Board of Governors

Bowman’s comments reflect divisions within the Board of Governors about how to proceed in terms of oversight and oversight.

Federal Reserve Chairman’s Reaction

During a congressional hearing on Thursday, Federal Reserve Chairman Jerome Powell reacted to widespread reports that regulators are raising bank capital requirements that could reach 20%.

Capital Requirements

“Capital requirements will be very limited for the eight major banking institutions,” he said, adding that other banks may be less affected by the capital increase. But the new measures “should not include banks with less than $100 billion in assets.”

The Need for Independent Investigation

For his part, Bowman believes that “there is no way to strengthen the supervision of large banks,” adding that a review of supervision can only take place after “an impartial and independent investigation into what led to these bankruptcies.”

The Importance of Fixing the Root Causes

“We need to be careful about what went wrong” and “be proactive about what needs to be fixed and be aware of the unforeseen consequences” that may arise.

Misperceptions and Misunderstandings

It also states that “misperceptions and misunderstandings of the root causes” of bankruptcies can have “negative consequences for banks, their customers, the financial system and the economy as a whole.”

Preparing Institutions to Access Liquidity

Bowman noted that the independent investigation would shed light on “the effectiveness of the necessary improvements in oversight and the revision of capital requirements and better prepare institutions to access liquidity” rather than “raising capital requirements for a number of banks.”

Conclusion

“It is clear that regulatory and supervisory reform is underway, but we must ensure that these changes are in favor of a stronger and safer banking system,” she added.