SUNANDO ROY – On Banking, Finance and Society

In recent years, Risk-Based Supervision is showing a fundamental shift from periodic, compliance-focused assessments towards dynamic, forward-looking, data-driven oversight . This evolution started with the rethink post financial crisis roughly two decades back. The acceleration however and the decisive shift across jurisdiction is witnessed in recent years, more so with the adoption of the revised Core Principles from Effective Banking Supervision by the Basel Committee of Banking Supervision in 2024. The trend is increasingly supported by SupTech and AI, and the evolution integrates institutional risks, systemic impact, emerging vulnerabilities and supervisory outcomes, enabling proportional, proactive interventions and more effective allocation of supervisory resources to strengthen financial system resilience. I have been tracking this trend over time, which is reflected in my blog series on Risk Based Supervision in the Financial Sector.

The US Banking Regulations are no exception to the above trend, which is directionally well aligned across jurisdictions. This was evident in the recent October 6, 2026 address by the Federal Reserve Vice Chair for Supervision Michelle Bowman . She outlined significant reforms that are underway in the US banking regulation space. Core idea: make banking supervision more proportionate, risk-focused, transparent and accountable. Major initiatives-

1. Risk-Based Supervision: Supervision should prioritize vulnerabilities capable of causing material financial harm rather than focusing excessively on procedural compliance .
2. Regulatory Proportionality: Supervisory requirements should reflect banks’ size, complexity, business models and risk profiles, avoiding disproportionate burdens on smaller institutions.
3. Modernizing Regulatory Thresholds: Outdated asset thresholds should be adjusted for inflation and economic growth, with periodic revisions every five years.
4. CAMELS Rating Reforms: Proposed revisions emphasize material financial risks, greater transparency in component assessments and reduced dominance of the Management rating in determining composite ratings.
5. Professional Supervisory Judgment: Examiners should exercise informed judgment, identify emerging vulnerabilities early and initiate timely, proportionate supervisory interventions.
6. Transparency of Expectations: Supervisory standards should be communicated clearly and consistently. Institutions should not encounter previously undisclosed expectations during examinations.
7. Reducing Regulatory Burden: Initiatives include  more predictable licensing processes for new banks.
8. Supervisory Governance: Excessive reliance on committees has contributed to delayed decisions, fragmented accountability and inconsistent supervisory responses. Clearer decision-making responsibilities are essential.
9.  

Bowman’s proposals represent a significant shift toward outcome-oriented supervision, emphasizing material financial risks, proportionality, examiner judgment and institutional accountability.

For banking supervisors internationally, the speech highlights important calibration aspects – balancing regulatory compliance with substantive risk assessment, strengthening supervisory effectiveness and ensuring timely intervention without compromising financial stability.

Source: Michelle W. Bowman, Federal Reserve, October 6, 2026.