The role of the Federal Reserve and other regulators in overseeing banks is not to make credit allocation decisions, but to ensure institutions manage their material risks, Fed Governor Michelle Bowman wrote in a recent essay.

Fed’s Role: In the essay, Bowman said the Fed's role is not to replace a bank's management and board in adopting a banking strategy and risk appetite. Rather, its role is applying targeted regulation and supervision to assess whether banks comply with applicable laws and operate safely and soundly.

Regulatory Balance: “This can be a difficult balance to strike but it is something we must always keep in mind whenever the Federal Reserve uses or proposes using its regulatory or supervisory tools,” Bowman said. “Banking regulation and supervision is not the appropriate method to implement new policies that are not mandated by Congress.”