michelle w bowman : my perspective on bank regulation and supervision speech ( via prerecorded video ) by ms michelle w bowman, member of the board of governors of the federal reserve system, at the conference for community bankers sponsored by the american bankers association, 16 february 2021. * * * good morning. i want to thank the american bankers association for inviting me to speak to you today. two years ago, i gave my first speech as a federal reserve governor at this conference in san diego, and it is always great to be with you — even if remotely from our recording studio at the board. it ’ s fair to say that a lot has happened over the past two years. it is an understatement to say that the covid - 19 pandemic has created significant challenges inside and outside the banking sector. bankers significantly adapted operations to continue serving their communities and customers. you overcame staffing challenges and other hurdles, kept the virtual doors open, worked with your customers, and provided assistance to workers and businesses through the paycheck protection program. those efforts have made, and continue to make, a huge difference in the lives of many people affected by the pandemic, and i thank you. since becoming a member of the federal reserve board, i have made it a priority to enhance the federal reserve ’ s dialogue with community bankers. i have embarked on an effort to meet with the leaders of every community bank and regional bank supervised by the federal reserve. this valuable interaction helps build an understanding of issues affecting small and regional banks, support supervisory decision - making, and shape some of my perspective. it has also helped the federal reserve identify initiatives to support the vital role of community banks in serving the financial needs of communities. today, i would like to share my approach to supervision and regulation, which has helped guide the fed ’ s efforts to improve oversight of community banks over the past few years and shaped our priorities for 2021 and beyond. in most cases, my points about banking regulation also apply to supervision. i will then focus on several federal reserve initiatives that are underway to support community banks during the pandemic and into the future. the first principle is fundamental to regulation but sometimes bears repeating — regulation should always strike the right balance. for banking regulation, that means a balance between actions that promote safety and soundness and actions that promote an acceptable and manageable level of risk - taking. the challenge is doing neither too little to be effective to achieve the public benefit of government

’ s banking system, quite naturally, came under severe pressure, though it has handled the downward adjustment in asset prices and the volatilities brought on by the financial crisis with remarkable success. a much more disturbing feature of the larger crisis has been the succession of opportunistic attacks on the hong kong dollar and on hong kong ’ s financial markets. these attacks increased the pains of recession by pushing up interest rates and by corroding confidence in our financial system, both locally and overseas. they reached a climax in the sophisticated assault of early august, which mobilised massive resources in an attempt to play off the currency board system against the stock and futures markets. this attack was unprecedented in scale and organisation. it posed a grave threat to the stability and integrity of our whole financial system. decisive, albeit controversial, action by the hong kong sar government ensured that this threat was averted. in combination with other factors, this action helped to ensure stability in our markets for the remainder of the year and beyond. the hkma ’ s role in the august operation is well known to members. for my part, i am fully convinced that what we did was necessary and right for hong kong, and that it delivered our financial system from the brink of a profound and very dangerous crisis. the portfolio of shares acquired by the government as a result of operations has been placed under the management of efil, which will draw up plans for disposing the majority of them in a gradual and orderly manner. but so much has been said about this subject that the impression is sometimes given that that is all that the hkma did in 1998. this is a pity, because we have other solid achievements to place on record. among the achievements worth singling out are : • effective supervision of the banking system to ensure stability and soundness during a period of intense regional financial crisis and domestic slowdown. • a growth of 27. 5 % in the accumulated surplus of the exchange fund during the year, or 15 % if the gains from the equity portfolio acquired in august are excluded. • continuing currency stability, within the framework of the linked exchange rate system, against unprecedented speculative attacks, and during a year of currency instability in much of the rest of the region. • substantial improvements to the currency board system, which have made it more resilient, more transparent, and less vulnerable to manipulation than it was before. • increased involvement in regional and global initiatives to promote hong kong as an international financial centre and