By Dylan Tokar and Nick Timiraos
In September, President Trump's pick to oversee banking supervision at the Federal Reserve met with the top officials from the central bank's 12 regional districts and delivered a rebuke.
The staff of the Fed's quasi-independent regional banks are the ones who conduct most of its banking exams, ensuring the nation's financial institutions are stable. Michelle Bowman, the Fed's vice chair for supervision, wanted a new direction for supervision, in part to ease the burden on banks. Some regional examiners apparently hadn't received the message.
Bowman made clear that, notwithstanding the Fed's sometimes opaque chain of command, she was in charge and expected examiners to get on board, according to people familiar with the meeting. Some of those present left unhappy with the message and what they took as a dressing-down, the people said.
The meeting was an opening shot by Bowman, a former banker from Kansas who had developed a reputation for butting heads with fellow governors and staff after being appointed to the Fed's board during Trump's first term.
Bowman, who projects a Midwesterner's approachability -- instructing people she meets to call her "Miki" -- outmaneuvered skeptics including Fed Chair Jerome Powell last year to secure the vice chair position.
Now she is moving to roll back what she and many in the Trump administration view as the regulatory excesses that followed the 2008-09 financial crisis.
"We have to take the financial system out of this straitjacket," Treasury Secretary Scott Bessent, who interviewed Bowman last fall as he sought candidates to succeed Powell, said on Fox Business in December.
Bowman has slashed staff and pursued what many inside and outside the central bank view as a housecleaning of the supervision and regulation division's senior leadership.
Ultimately, she says she wants to make the exam process more transparent and fair for banks. In public speeches, Bowman has criticized the Fed's examiners for focusing too much on "procedural and documentation shortcomings" and not enough on a bank's core financial risks. She says reforms will make the process more efficient and lead to improved risk-spotting.
Bowman's attempts to remake the division are happening as Trump piles pressure on the Fed and Powell to lower interest rates. Federal prosecutors have launched a criminal investigation into testimony by Powell over a building-renovation project, raising fresh questions about the central bank's independence. And Trump is expected to name a nominee to replace Powell soon.
Bowman's plans to cut jobs and remake rules for examiners are adding to the tension and dramatic remaking of the central bank.
Internally, some examiners have interpreted her policies to mean they should refrain from being tough on the banks they oversee, people familiar with the division said. In recent months, some examiners were sidelined or taken off the job by their supervisors after banks lodged complaints with Bowman, several people said.
Some former Fed officials, Democratic lawmakers and banking watchdogs have expressed concerns about a hollowing out of the regulator and whether the Fed will be in position to identify emerging risks before they become systemic.
"They start to figure out that people who push a little bit harder on the banks, they get reprimanded, they don't get promoted," said Daniel Tarullo, a former Fed governor appointed by President Barack Obama in 2009 to overhaul financial regulation.
From small-town banker to top regulator
For Bowman, the reforms are the culmination of years spent fighting against the orthodoxy of the Fed and the more forceful regulatory agenda of her predecessor, Fed governor Michael Barr.
Bowman's family owns a farm and ranch as well as a small-town bank where she used to work, overseeing compliance and even shoveling snow when the job required. When she was appointed to the Fed in 2018 to a seat reserved for someone with community-bank experience, she found herself culturally out of sync with the Fed's more cosmopolitan, buttoned-up establishment, people familiar with her tenure said. In 2021, for example, Bowman opposed a decision to require proof of Covid vaccinations for any Fed employees or visitors, holding meetings off-site and openly questioning a policy she viewed as an overreach, these people said.
She told associates she was frustrated by the limited power she had to influence community-bank matters, and felt some governors and staff members weren't taking her seriously or were deliberately obstructing her, the people said. She was particularly angered by what she viewed as an effort by Barr during the Biden administration to cut her out of decision-making around supervisory issues, they said.
Bowman has hired an outside consultant, Starling Trust Sciences, to conduct a fresh review of the 2023 failure of Silicon Valley Bank, an email sent to staff on Friday said. Bowman has called an internal postmortem that Barr conducted inadequate.
The tension with staff and longtime Fed insiders has come to a head since she took over the supervision division. While associates point to how much she has accomplished in a short period, some of the people also questioned whether her combative relationship with staff could ultimately hinder her ambitious agenda.
On the heels of her appointment, some senior officers were ordered to halt work and subsequently excluded from meetings, several of the people said. Some have since left the Fed.
Bowman has elevated other staffers and increasingly relies on the counsel of an inner circle that includes a longtime banking lawyer and an economist with experience working for the Fed as well as a trade group for the nation's largest banks.
She intends to sharply cut the number of senior officials in the division, according to people familiar with her plans. She is also seeking a 30% reduction to the broader division staff, leading the Fed to offer division employees a voluntary buyout package of four months of administrative leave plus four months' pay. For now, the reductions only apply to supervision and regulation staff at the Fed board in Washington, D.C.
Bowman and others, including the banks, view the cuts as an overdue and necessary reversal of years of steady bloat.
"The supervisory process has become too bureaucratic and has lost its focus," said Andrew Olmem, a lawyer at the firm Mayer Brown who served as deputy director of the National Economic Council during Trump's first term.
Other reforms are in the works. She is expected to set stricter guidelines around when examiners can formally cite a bank for problems and limit what examiners can define as a financially unsafe practice. And she and other regulators have also mulled ways to allow banks to more easily contest examiner findings, citing "abusive supervisory behaviors" and a need to make examiners more accountable.
"This framework is long overdue for a comprehensive review," Bowman said in a recent speech. "An unfocused, process-heavy approach to regulation and supervision leaves banks less able to support economic activity, displaces activity into unregulated sectors and ultimately makes the overall financial system less safe and stable."
Write to Dylan Tokar at dylan.tokar@wsj.com and Nick Timiraos at Nick.Timiraos@wsj.com
(END) Dow Jones Newswires
January 25, 2026 20:00 ET (01:00 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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