The collapse of Silicon Valley Bank showed a regulatory system that had become too wide and scattered. Now the Fed's top banking regulator wants to narrow the focus - and make life easier for small banks.
Michelle Bowman delivered a speech on January 7, 2026, to the California Bankers Association. She has been on the Federal Reserve Board for seven years, but only seven months as Vice Chair for Supervision. President Trump appointed her to that role in June 2025.
Bowman is a former community banker herself and once served as Kansas State Bank Commissioner. That background matters because her proposals tilt heavily toward smaller banks. The Fed already published supervisory operating principles in October 2025 to boost transparency and accountability. In December 2025, it released the LISCC Operating Manual - the rulebook used to supervise the largest banks.
The biggest number on the table is the community bank leverage ratio (CBLR). A leverage ratio is a simple measure of a bank's capital compared to its total assets. Right now, community banks that qualify must hold capital equal to 9% of their assets. Bowman wants to drop that to 8%.
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A community bank today is any bank with less than $10 billion in assets. A large bank starts at $100 billion. Bowman said she believes the Fed should reconsider those thresholds and may index them to nominal GDP - meaning they would rise as the economy grows, without needing new rulemaking.
Bowman also wants to remove "reputation risk" from the supervisory process. That term had let examiners penalize banks for things that hurt their image, not their safety. The Fed will issue new regulations that define "unsafe and unsound" practices more clearly, so banks know exactly what to avoid.
The stress testing system will also get a rewrite. Stress tests are simulated crises that check if a bank can survive. Bowman wants to reduce year-over-year volatility in the results, improve the accuracy of the models, and make the whole process more open.
Think of supervision like a garden hose. If you aim it at one patch, you water deeply. If you spray it everywhere, nothing gets enough. Bowman says the old approach sprayed everywhere - and the bank missed the fire right in front of it.
The law already requires the Fed to rely on other regulators' exams "to the fullest extent possible." Bowman wants to enforce that rule more strictly. She said, "This framework is long overdue for a comprehensive review."
The Fed plans to release more LISCC administrative manuals in the coming weeks and months. It will also propose formal rules on "unsafe and unsound" definitions and the new community bank leverage ratio. Bowman said she is committed to working closely with other banking agencies to harmonize proposals. She added a standard disclaimer: "The views expressed here are my own and are not necessarily those of my colleagues on the Federal Reserve Board or the Federal Open Market Committee." The next few months will tell whether her colleagues agree - or slow the overhaul down.
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