The Federal Reserve welcomes a new regulatory director, is the last hawkish fortress going to loosen?

Author: ChandlerZ, Foresight News

Recently, the U.S. Senate passed the nomination for Michelle Bowman as the Federal Reserve's vice chairman in charge of regulatory affairs with 48 votes in favor and 46 votes against. The Kansas Republican will replace Michael Barr in the highest position in the Fed's regulatory field and will be directly responsible for the supervision of stablecoin issuers and crypto-related institutions in the future.

Michelle Bowman: From director to supervisor

Born and raised in Kansas, Michelle Bowman holds a bachelor’s degree in advertising and journalism from the University of Kansas, and a doctorate in law from Washburn University School of Law, and is a registered lawyer in New York State. In her early years, she held several positions in the U.S. Congress, serving in the office of Senator Bob Doer, and served as legal counsel on the House Transportation and Infrastructure Committee and the Government Reform and Oversight Committee. Since 2002, she has entered the federal government administration system and served as director of Congress and government affairs at the Federal Emergency Management Agency (FEMA), and then served as deputy assistant secretary of the Department of Homeland Security and policy adviser, providing policy support to the first Secretary of Homeland Security Tom Ridge.

After working in the federal government, Bowman went to London to start and run a government and public affairs consulting firm, before returning home in 2010 to join Farmers & Drovers Bank in Kansas, where he served as vice president for seven years, gaining insight into the operational reality of community banks. In 2017, she was appointed as the Kansas Banking Commissioner, overseeing banking institutions across the state, and in 2018 she joined the Fed Council.

During his tenure at the Federal Reserve, Bowman was known for focusing on small and medium-sized banks and emphasizing the balance of regulation and innovation. She repeatedly stressed that bank regulatory tools should be avoided in achieving policy objectives that are not related to finance, and called for the maintenance of the sound operation of the banking system while encouraging innovation. As vice chairman of regulation, she will dominate access and regulatory policies for stablecoins, crypto assets, and fintech companies, and is seen as one of the key figures in the possible change in the Fed's stance.

She has repeatedly questioned the central bank's digital currency (CBDC) and has warned about the risks that stablecoins may pose under the lack of clear rules. At the April hearing, Michelle did not explicitly state his policy tendency in crypto assets.

The Fed's position as Vice Chairman for Regulatory Affairs was established after the 2008 financial crisis with the aim of separating the Fed's monetary policy and regulatory responsibilities. After taking office, Michelle will have direct influence in crypto business access, stablecoin specifications, etc. It also recently stated that the Federal Reserve will re-formulate regulatory rules for the largest and most complex banks in the country, revealing that the Federal Reserve will soon launch multiple projects aimed at relaxing requirements and simplifying supervision, involving multiple regulatory areas that have been criticized by the banking industry for a long time.

It may promote a change in regulatory attitudes

Against the backdrop of the overall warming of the US crypto-regulatory environment, the Federal Reserve has always been the most cautious one. Historically, the Federal Reserve, together with the Treasury Department’s OCC and FDIC, has limited access to banking services for crypto companies. Even after the political environment changes, the Fed remains vigilant about cryptocurrencies.

Federal Reserve Chairman Powell has previously said Congress should advance a "larger regulatory framework around cryptocurrencies" to address the potential risks of stablecoins. This cautious stance contrasts sharply with the openness of other regulators. Although the Fed has relaxed some restrictions recently, the overall regulatory environment remains unclear.

In April, the Federal Reserve Commission issued an announcement saying it would revoke previous guidance on bank crypto assets and dollar token activities and adjust relevant expectations to ensure consistency with changing risks while further supporting innovation in the banking system. Specific measures include revoking the 2022 regulatory letter, no longer requiring state member banks to notify crypto asset activities in advance, and instead monitoring it through conventional regulatory processes; revoking the 2023 letter on state member banks' non-opposition process for regulating US dollar token activities; and in conjunction with the Federal Deposit Insurance Company and the Currency Supervision Agency to revoke two joint statements issued by the Federal Banking Regulatory Authority on bank crypto asset activities and risk exposure.

Michelle Bowman has repeatedly stated in public that regulation should not be a reason for banking services to "close". She believes that regulators should not use rules to exclude legal enterprises from obtaining financial services, and should not serve irrelevant policy objectives. This remark just responds to the long-term dissatisfaction of the crypto industry with "debanking".

During the confirmation hearing, Michelle promised to promote a safe and robust banking system through pragmatic regulatory approaches and to establish a transparent and tailor-made banking regulatory framework to encourage innovation. This pragmatic and innovative expression is not common under the strict regulatory style of his predecessor Michael Barr. Judging from the current statement, her evidence-based regulatory approach is expected to improve bank access for crypto companies and introduce balanced regulation for stablecoins, which is in contrast to the Fed's previous cautious stance.

Policy changes are in critical period

Judging from the overall policy orientation of the Trump administration, Michelle's appointment is only part of the crypto-friendly policy. The Senate Agriculture Committee plans to consider Trump's nomination for Brian Quintenz to chair the Commodity Futures Trading Commission on June 10.

But changes in regulatory policies still take time to consider the attitudes of Congress and other regulators. The regulation of US stablecoin is currently under the jurisdiction of multiple institutions, causing chaos and complexity. The GENIUS Act attempts to establish a federal framework while allowing state regulatory regulations to continue to exist. Republican efforts aim to limit the Fed’s jurisdiction over stablecoin issuers, while Democrats advocate broader regulation, including regulation of non-bank issuers. This inconsistency highlights the urgent need for a unified regulatory approach, and Bowman may play a key role in this differentiated regulatory environment, deciding how the Fed can effectively interact and guide the stablecoin market.

Overall, Michelle Bowman’s appointment may indeed loosen the Fed’s last hawkish fortress. In the context of the overall crypto environment in the United States, a change in the Fed's attitude may remove the last obstacle to industry development. But the specific policy effect still needs to be observed in her actual work.