Federal Reserve overhauls US banking oversight with risk-focused rules and staff cuts
The Federal Reserve has introduced new guidelines for overseeing the US banking system. Released on Thursday, the changes aim to streamline supervision by focusing on key financial risks. The move comes alongside plans to cut regulatory staff by nearly a third.
Michael Barr, the Fedâs vice chair for supervision since 2021, announced the updated framework. Under the new rules, bank examiners will prioritise material financial risks over paperwork and processes. Banks will also gain more responsibility, with the ability to self-certify on certain risk and supervision matters.
The Fed intends to reduce its regulatory workforce by about 30%, primarily through attrition rather than layoffs. Additionally, the central bank will rely more on other major regulators when supervising financial institutions.
Criticism of the changes emerged quickly. Barr, who previously served as a Fed governor, warned that fewer staff could delay responses to emerging risks. He also cautioned that reduced oversight might limit the detection of supervisory issues and enforcement actions.
Michelle Bowman, the Fedâs current vice chair for supervision, defended the principles. She argued they would sharpen the central bankâs focus and create a more effective banking supervision system.
The revised guidelines shift the Fedâs approach to banking oversight, emphasising risk over administrative checks. With staffing cuts and greater reliance on self-reporting, the changes will reshape how financial institutions are monitored. The impact on enforcement and system stability remains to be seen.
