Federal Reserve Gov. Michelle Bowman said more research and debate is needed on
In remarks at the Federal Reserve Bank of St. Louis' annual Community Banking Research Conference on Wednesday, Bowman emphasized the importance of robust studies to inform an "evidence-based approach" to bank regulation.
"Research, data and analysis are essential to thoughtful bank regulatory reform," Bowman said. "These tools can be used to identify issues that must be addressed or remediated; they can help us evaluate which elements of the current bank regulatory framework may be effective or ineffective, and they can help us craft reforms with a clearer understanding of the intended and unintended consequences."
The conference was co-hosted by the Federal Deposit Insurance Corp. and the Conference of State Bank Supervisors. During her speech, Bowman lauded the efforts by researchers from the regulatory, academic and banking worlds to gauge the strengths and weaknesses of community banks relative to their larger peers.
Bowman said additional research could be used to better define what constitutes a community bank. She questioned whether the longtime threshold of $10 billion of total assets — the point established by the Dodd-Frank Act of 2010 at which a bank is subjected to greater regulatory scrutiny — is still an appropriate indication of risk and complexity.
"Are these asset-size thresholds properly calibrated, and are the impacts, costs and benefits to institutions and to customers when banks cross these different thresholds rational?" Bowman asked. "Are these thresholds creating the right incentives to promote prudent lending while appropriately balancing risk?"
She suggested that it might be appropriate to look beyond "simple asset-size thresholds" when tailoring regulations for individual banks, and she noted that further research could make that possible.
Bowman also called for a reconsideration of how certain bank funding models are treated in the wake of three large regional bank failures earlier this year. Given the speed at which deposits — many of which were not federally insured — were withdrawn from Silicon Valley Bank and Signature Bank in March, she said it might be worth revisiting the parameters of deposit insurance.
"We need to ensure that the framework that we put in place today supports the banking system of tomorrow and not the banking system of yesterday," she said.
Bowman pointed to the FDIC's report in May on
"I see an opportunity for extensive stakeholder engagement and public dialogue on the topic of deposit insurance and the evolution of deposit practices," Bowman said, noting that community bankers are well versed in the issues at hand and could prove to be a valuable resource for researchers. "Their insights can complement research on this topic and can bring a valuable and realistic practitioner's perspective to this significant matter of public policy."
In her remarks Wednesday, Bowman also reiterated her call to action from last year's Community Banking Research Conference that more research was needed to inform regulatory policies governing
"The baseline assumption in our current framework is that credit unions do not compete with banks, and yet just last month we saw five announced acquisitions of community banks by credit unions," Bowman said. "Despite this trend, after a community bank has been acquired by a credit union, the resulting credit union is no longer viewed as a baseline competitor with other community banks in the market. I think it is fair to question whether this view is consistent with reality."
Bowman concluded her remarks by noting that an evidence-based approach to regulation was particularly important in the current environment in light of the various proposals from regulators regarding risk capital, long-term-debt requirements and other potential rule changes.
She said that she is open to making policy changes in response to the events of this past spring, but added that research would be critical to
"Bank failures demand scrutiny, but bank failures alone do not justify wholesale revisions to the bank regulatory framework," she said. "Before we undertake reforms intended to address issues that led to bank failures, we need to develop a comprehensive understanding not only of those root causes, but also of the costs and unintended consequences of potential reforms."
