Famed media personality Anthony Bourdain once observed, "In my 15 years of traveling around the world, I've missed three days due to stomach problems." He further noted that it was members of his film crew, who were wary of local food and more inclined to eat at places like the hotel buffet, who got sick more often. Bourdain's insight was that as long as you eat "in crowded local joints," chances are you're going to be okay.
Bourdain's lesson reveals the often superfluous nature of regulation. When eating at restaurants, we are not so much protected by any single law stating that food must be edible; rather, it is in a restaurant's inherent self-interest to attract and retain customers. Getting customers sick or having them dislike their meal would be the quickest way to fail.
This brings us to the importance of the Senate confirming Michelle Bowman as Vice Chair for Supervision at the Federal Reserve. At present, billions of dollars in capital are essentially under lock and key, which could otherwise be invested to jump-start new businesses and create jobs. This liquidity is trapped as a direct result of the capital reserve requirements imposed on the U.S. financial sector by regulators via the Basel III mandates and the Federal Reserve's "stress test."
The stress test, in particular, plays a crucial role in determining how much money banks can lend out to facilitate personal loans, small business loans, mortgage loans, and all other forms of investment in our economy. However, the Fed keeps much of its grading system opaque, leaving banks uncertain about how to comply with its vacillating and unexplained requirements. As a result, billions of dollars sit idle on the sidelines that could otherwise be put to good use.
Michelle Bowman presents as an optimistic choice for the position because she has opposed the current regulatory framework. During her tenure as a Fed Governor, Bowman voted against the Basel III requirements and voiced criticism toward the lack of transparency regarding the stress test, arguing that they may be overly restrictive and stifle economic growth. Bowman holds a unique perspective as someone with extensive experience in community banking before. Her principled opposition stems from a desire to strike a balance between ensuring financial stability and promoting economic expansion.
Drawing a parallel to Bourdain's observation, the recent increases we’ve seen in capital reserve requirements should seem overly burdensome, given that no bank aims to fail. Banks must retain discipline by depositors seeking interest on their funds and shareholders wishing to protect their investments to stay afloat; that’s how they keep their customers happy. With this in mind, financial institutions should be afforded greater ability to make informed decisions about lending practices, as opposed to federal regulators. While no reserve requirement can prevent a poorly managed bank from failing, the current stringent requirements decided on by bureaucrats hinder much investment in the private economy.
For these reasons, the Senate should promptly confirm Michelle Bowman, enabling her to bring a lighter touch approach to regulation to the Federal Reserve. Doing so would unlock the constrained capital that could fuel new enterprises and job creation, or at least improve the hotel buffets.
