Michelle W Bowman: Bank liquidity, regulation, and the Fed's role as lender of last resort
Speech by Ms Michelle W Bowman, Member of the Board of Governors of the Federal Reserve System, at the Roundtable on the Lender of Last Resort "The 2023 Banking Crisis and COVID", sponsored by the Committee on Capital Markets Regulation, Washington DC, 3 April 2024.
The views expressed in this speech are those of the speaker and not the view of the BIS.
Today's roundtable comes at an opportune time, as we recently passed the one-year anniversary of the failures of Silicon Valley Bank (SVB) and Signature Bank. The long shadow of these bank failures, and the subsequent failure of First Republic, have prompted a great deal of discussion about the bank regulatory framework, including capital regulation, the approach to supervision, and the role of tailoring, among other topics. It is my hope that our discussion today reviews and considers the appropriate role of the Federal Reserve in providing liquidity to the U.S. banking system and, of course, its role as the "lender of last resort" through the discount window and authority under section 13(3) of the Federal Reserve Act.
I look forward to today's panels and a deeper examination of important policy questions, including the lessons that should be learned from the banking system stress experienced last spring, the broader stress in financial markets during the COVID-19 crisis, potential approaches to operationally enhance and optimize tools like the discount window to more effectively meet industry liquidity needs, and the importance of effective resolution mechanisms in the banking system.
Before the panels get into a "deep dive" on these policy issues, I would like to briefly touch on three main themes: (1) the broader framework in which the Federal Reserve supports liquidity in the banking system, particularly how this function complements other regulatory requirements and sources of liquidity; (2) how this function can be optimized to work within the evolving liquidity framework; and (3) the challenges we face in making the Federal Reserve's liquidity tools, particularly the discount window, effective.