Fed Governor Michelle Bowman: Banking Regulations Should Allow Innovation

The regulatory framework should not prevent banks from providing innovative and competitive products and services, Federal Reserve Gov. Michelle W. Bowman said Monday (Feb. 17).

Speaking at the American Bankers Association’s Conference for Community Bankers in Phoenix, Bowman said that while the framework must promote safety and soundness in the banking system, it should not impede banks’ operations.

“Our work to maintain an effective framework is never really complete,” Bowman said in a speech to be delivered at the event. “Just as complacency can be fatal to the business of a bank, complacency can also prevent regulators from meeting their statutory obligation to promote a safe and sound banking system that enables banks to serve their customers effectively and efficiently.”

In terms of bank supervision, Bowman said supervisory ratings have led to a de-prioritization of core financial risks. Pointing to a Fed report that said most large financial institutions met supervisory expectations with respect to capital and liquidity but only one-third had satisfactory ratings across all relevant ratings components, Bowman said this raised a question about whether non-core and non-financial risks had been over-emphasized.

When it comes to bank applications, Bowman said the process may have created impediments that have led to a current lack of new bank formation. She added that regulators could improve the process by developing specialized expertise, streamlining the application process and improving transparency.

In the case of mergers and acquisitions, Bowman said “the purgatory of a long application process” could be remedied by updating application forms to include all the information that is needed and by adhering to fixed approval timelines.

Addressing regulation, Bowman said that the body of regulations applied to banks has grown dramatically since the 2008 financial crises and that some of those regulations may be outdated, unnecessary and overly burdensome.

“The banking system can be an engine of economic growth and opportunity, particularly when it is supported by a bank regulatory framework that is rational and well-maintained,” Bowman said. “The work of rationalizing and maintaining this system is an ongoing cycle. While my remarks today have touched on a wide range of issues that require rationalization and ‘maintenance,’ this is by no means an exhaustive list.”