Bowman advocates for increased research on regulatory thresholds and deposit insurance requirements.
Michelle Bowman Calls for Evidence-Based Banking Regulation
Michelle Bowman, Federal Reserve Governor, has urged for more research and discussion on regulatory thresholds for banks and the deposit insurance framework. Bowman made these remarks at a banking conference co-hosted by the Federal Deposit Insurance Corporation (FDIC) and the Conference of State Bank Supervisors.
In her address, Bowman emphasised the importance of an "evidence-based approach" to bank regulation. She believes that research and evidence-based rulemaking can help insulate the banking system from policy swings over time. Bowman also called for increased engagement from shareholders, the public, and community bankers in dialogue about evolving deposit practices.
The banking sector has faced turbulence this year, with three bank failures in March and May. Bowman suggested that these collapses underscore the need for evidence-based rulemaking to identify problems and craft targeted solutions. She also emphasised the need for extensive research and analysis on various options, not just those developed in response to a bank run crisis.
Bowman questioned the $10 billion-asset threshold used to define a community bank in the Dodd-Frank Act, suggesting the need to move beyond asset size thresholds when tailoring rules and consider business models instead. She also referred to the FDIC's May report focusing on the deposit insurance program and discussed unlimited or targeted deposit insurance coverage.
Bowman advised policymakers to exercise restraint and patience, consider the evidence, and strive for well-calibrated policies that fully incorporate the costs, benefits, and impacts of reform. She reiterated her call for updating and modernizing the banking framework, emphasising the need for further research on bank funding models and deposit infrastructure, as money movement can pose unprecedented risks in modern technology-driven banking.
The trend of community banks being acquired by credit unions was also a point of discussion. Bowman pointed out the trend and questioned whether the view that credit unions do not compete with banks is consistent with reality.
The Leibniz Institute for Economic Research Halle (IWH), particularly its Center for Evidence-Based Policy Advice (IWH-CEP), has engaged in work related to the update and modernization of banking regulation frameworks and deposit insurance. The IWH-CEP has focused on European harmonization of bank capital rules, bank resolution, and deposit insurance as part of the European Banking and Capital Markets Union.
Bowman concluded by suggesting that bank mergers and acquisitions should not be seen as limiting community lending, and combining two financial institutions in certain markets might be necessary for community banks to survive.
