Regulatory limits and deposit insurance require further investigation, according to Bowman's stance.
Federal Reserve Governor Michelle Bowman Calls for Modernization and Evidence-Based Banking Regulation
Federal Reserve Governor Michelle Bowman delivered a speech at a banking conference co-hosted by the Federal Deposit Insurance Corp. (FDIC) and the Conference of State Bank Supervisors. In her address, Bowman reiterated her call for updating and modernizing the banking framework to support the banking system of tomorrow.
Bowman proposed changes to bank regulatory frameworks, focusing on modernizing oversight to improve efficiency and competitive conditions. She emphasized the importance of conducting extensive research and evidence-based regulatory approaches at institutions dealing with financial stability, risk management, and consumer protection to clarify the impact on bank customers.
One of the key areas Bowman touched upon was the trend of community banks being acquired by credit unions. She questioned whether the view that credit unions do not compete with banks is consistent with reality. Bowman suggested that bank mergers and acquisitions should not be seen as limiting community lending but rather as a potential path for community banks to survive.
Another important aspect of Bowman's speech was her emphasis on the need for further research on bank funding models and deposit infrastructure to support modern technology-driven banking. She also highlighted the importance of an "evidence-based approach" to bank regulation, advocating for thorough research to prevent overreactive regulation and ineffective ones that fail to precisely address systemic banking risks and challenges.
Bowman also referred to the FDIC's May report, focusing on the deposit insurance program and unlimited or targeted deposit insurance coverage. She emphasized the need for a comprehensive understanding of the costs and unintended consequences of potential reforms before undertaking them.
The banking sector experienced turbulence this year, with three bank failures in March and May. Bowman called for extensive research on various options beyond those developed in reaction to a bank run crisis. She advised policymakers to exercise restraint, consider the evidence, and strive for well-calibrated policies that fully incorporate the costs, benefits, and impacts of reform.
Bowman also emphasized the need for extensive shareholder engagement, public dialogue, and community bankers' insights on evolving deposit practices. She suggested moving beyond asset size thresholds when tailoring rules and considering business models instead. Bowman questioned the $10 billion-asset threshold used to define a community bank in the Dodd-Frank Act.
In conclusion, Bowman's speech at the banking conference underscored the need for modernization and evidence-based regulation in the banking sector. Her call for research and a comprehensive understanding of the costs and benefits of potential reforms highlights a commitment to making informed decisions that will support the banking system of tomorrow.
