Governor Bowman and Commissioner Johnson unveil key insights on regulatory reforms for a stronger financial system during Salzburg Global’s 2023 Finance Forum
“The banking system today is strong and resilient, despite recent banking stress,” reassured Governor Michelle Bowman, a member of the US Federal Reserve Board of Governors. Commissioner Kristin Johnson, a Commodity Futures Trading Commissioner, echoed that the banking regulatory framework “has demonstrated remarkable resilience even in the context of the defining challenges of most recent years.”
Both Governor Bowman and Commissioner Johnson delivered keynote speeches at the 2023 Salzburg Global Finance Forum. The Finance Forum brings together senior and rising leaders from the financial industry and public sector at Salzburg Global Seminar, with the focus this year on “Global Turbulence and Financial Resilience: Implications for Financial Services and Society”.
Over the course of several days from June 25-27, 2023, Fellows tackled critical issues affecting the future of financial markets and global economic stability. Discussions centered around the recent US bank failures, financial technologies, banking regulation, the growth of nonbanks, and digital currencies, among other topics.
In her keynote speech, Governor Bowman called for responsible reform of the banking regulatory framework, specifically in the United States. The bank failures of Silicon Valley Bank, Signature Bank, and First Republic Bank “highlighted the need for regulators to consider reform efforts to make the financial system stronger and more resilient… These bank failures and recent stress in the banking system have highlighted key deficiencies in risk management practices and key deficiencies in supervisory priorities.”
Her remarks addressed “the importance of a responsive and responsible regulatory framework.” She emphasized the principles of transparency, accountability, efficiency, and due process in any reforms.
Furthermore, these reforms should be informed by “an impartial and independent review of what led to the failures and healthy public debate.” An understanding of the root causes of bank failures is crucial for making necessary changes and avoiding potential harm to banks, customers, and the broader economy. “We must be circumspect about what went wrong, deliberate about what to fix, and cognizant of unintended consequences,” she advised.
Governor Bowman advocated for regulatory reforms that strike a balance between safety and soundness, competition, and the ability of banks to serve their customers while avoiding undue burdens that could hinder economic activity. She emphasized that reforms to "banking regulatory and supervisory policy... should be focused on promoting a safe and sound banking system."
Further speaking on the need for reforms, Commissioner Johnson elaborated on how we can future-proof financial markets and their regulation “by balancing responsible innovation with accountability.” She focused on how to safely harness the potential of emerging financial technologies while adapting regulations to them. Her speech highlighted the challenges faced by financial markets, such as supply-chain disruptions, volatility, and inflationary pressures.
Regarding new financial products and platforms, including those in the crypto markets, Commissioner Johnson advocated for subjecting them to longstanding regulatory principles which "ensure customer protection, market integrity, and market stability.” There should be an awareness of risks in the digital asset ecosystem, as recent bankruptcies associated with the “crypto winter” demonstrate that "without sufficient risk management, corporate governance, and conflicts of interest guardrails, vertical integration may present endemic conflicts of interest and risks.”
She highlighted the importance of customer confidence in banking institutions, stating that bank regulators are obligated to ensure that “banks demonstrate responsibility and accountability” to maintain public trust. This consideration is especially relevant in the context of recent bank failures.
Non-bank financial institutions (NBFIs) are increasingly important in the global financial system and have become interconnected with traditional banking institutions. Commissioner Johnson pointed out that the rise of NBFIs raises two significant issues, namely for bank regulators to “increase our vigilance regarding oversight of known systemically important financial institutions as well as appreciate new sources of risk.”
Overall, Commissioner Johnson called for introducing and enforcing regulations to ensure customer protection, market integrity, and stability in crypto-commodity derivatives markets and other vulnerable retail markets. She also recommended greater due diligence and regulatory oversight in acquisitions of significant equity ownership stakes in CFTC-registered entities.
Governor Bowman and Commissioner Johnson share common ground in advocating for responsible regulatory reforms that prioritize the safety and soundness of the banking system, while also considering competition, customer service, transparency, accountability, and the potential consequences of reforms. They emphasized the importance of customer protection, market integrity, and regulatory oversight in addressing the challenges faced by the financial markets.
The memorable remarks delivered by Governor Bowman and Commissioner Johnson helped inform the ensuing discussions by Finance Forum Fellows on how to forge a financial landscape that not only withstands bouts of uncertainty but also embraces the promise of innovation.
Michelle W. Bowman has been serving as a member of the board of governors of the Federal Reserve System since 2018. Prior to her Board appointment, Michelle served as the Kansas State Bank commissioner from January 2017 to November 2018, before which she was vice president of Farmers & Drovers Bank in Kansas from 2010 to 2017.
Read Governor Bowman’s full remarks here.
Kristin Johnson was sworn in as a US Commodity Futures Trading Commissioner in 2022, after holding endowed professorships at Emory University and Tulane University Law Schools. Kristin is a nationally recognized expert on financial markets risk management law and policy with specialization in the regulation of complex financial products. She is an internationally recognized expert on financial markets regulation and corporate governance, compliance, and risk management.
