Economy

Bowman Outlines Bank Supervision Changes After SVB

Bowman sets out changes to bank supervision after SVB. For mining investors, earlier action could preserve credit or tighten a lender's terms.

by Graham Ellery2 min read

Exposed steel locking bolts inside a bank vault door sit beneath a single maintenance lamp.
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Federal Reserve Vice Chair for Supervision Michelle Bowman said the Fed is considering changes to make bank supervisors act sooner on financial risks in her October 14 speech on supervisory modernization after Silicon Valley Bank. These include clearer responsibility between Board and Reserve Bank staff, explicit decision rights for examiners and direct escalation channels to senior supervision leaders.

Bowman said SVB had 54 supervisory findings between 2019 and its failure, yet none required it to address its core financial risks. She attributed that account to a preliminary independent review. Her argument is that earlier action gives a bank more time to improve liquidity, reduce exposures or raise capital under normal market conditions. For us, that offers a possible route to more dependable bank credit if it reduces the risk of a lender having to retreat abruptly when its finances deteriorate.

The Fed's September 24 supervisory operating principles already say examination teams will be asked to report uncertain supervisory issues regularly to Reserve Bank leaders. Staff will not be criticised for reasonable, honest mistakes made in good faith. We see an effort to give examiners more confidence to act before losses become urgent. Borrowers still face a potential squeeze during that process: a bank told to strengthen liquidity or reduce exposures could become more cautious about extending credit while it repairs its finances.

The Fed's July lending survey, covering the second quarter, reported basically unchanged standards for commercial and industrial loans to firms of all sizes, with some terms easing. Those results predate this speech and cannot establish an effect from it. We would assess lending standards separately from the interest-rate outlook discussed in Bowman Sees No Urgency for Further Rate Action. Even if benchmark rates eventually fall, a borrower still needs approval and must meet the lender's conditions before drawing money.

Will your miner find it easier to borrow? We would compare cash and committed borrowing facilities with construction spending and debt maturities before assuming supervisory reform will improve financing. A signed facility's draw conditions tell you more about access to money than this speech can. If a lender becomes more cautious, a miner with funding already committed and conditions satisfied could be better placed to keep building, while a developer still negotiating construction debt could face delays or tougher terms. We would want evidence in actual financing agreements before changing a mine's funding assumptions.

We will watch the Fed's October 16 bank balance-sheet release and October 27-28 policy meeting for lending volumes and the rate backdrop; neither alone will establish whether supervision has improved.

Seek the truth and be prepared,

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Disclaimer: This letter is for informational and educational purposes only and does not constitute investment advice. Past predictions and performance are not indicative of future results. Please see our full terms of use and disclaimer at equedia.com. We own gold and gold stocks.

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