Regulation

Fed Aims To Regulate Banks Based On Size

The Federal Reserve wants to change some of its regulations so that smaller banks don't have to handle the same scrutiny and paperwork as bigger institutions.

“I would emphasize how crucial it is to balance effective regulation and supervision to ensure the safety and soundness of community banks, while also ensuring that undue burden does not constrain the capacity of these institutions to support the communities they serve,” said Fed Governor Michelle Bowman at an American Bankers Association conference in San Diego.

Bowman, a former small-town banker and regulator in Kansas who was appointed to the Fed last year by President Donald Trump, noted that she had "witnessed firsthand how community banks were significantly affected by the global financial crisis, a crisis they did not cause."

“Our job now is to ensure that community banks continue to remain strong,” she said, adding that there were no community bank failures in 2018.

In particular, Bowman spoke about the specific risks that many smaller banks face, explaining how bankers should “actively manage concentrations of credit risk, and be mindful that strong lending activity can strain liquidity. For example, concentrations of commercial real estate are rising, and are quite high at some banks, prompting us to remind bankers of the difficulties that such concentrations presented in the past.”

Bowman also believes the country's monetary policy is "in a good place," and she supports the Fed's recent decision to halt any further interest rate hikes.

“When I look at the jobs numbers, and I look at the inflation number, our economy is in a very good place,” she added.

In fact, data released earlier this month showed that job growth, as measured in January, sent nonfarm payrolls up by as many as 304,000 positions, which beat estimates of 170,000 jobs created.

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