Fed Gov. Bowman: ‘Imperative’ to modernize evaluation of bank competition

In an address today during a community banking event, Federal Reserve Gov. Michelle Bowman discussed the “new and evolving competitive landscape” for U.S. banking services, with particular emphasis on community banks.

Referencing results from the Conference of State Bank Supervisors National Survey of Community Banks released today, Bowman said that although the majority of community banks identified other community banks as their primary competition, that trend has steadily declined as credit unions and larger banks became the dominant competitors for deposits in an increasing number of markets.

A larger percentage of community banks reported fintech firms as their primary competitors for consumer loans, the Farm Credit System as their primary competitor for ag loans and nonbanks as their primary competitor for mortgage loans. The new competitive landscape “creates an opportunity for us to rethink how we evaluate bank mergers, how we define banking markets, and how we develop a more comprehensive understanding of the ways consumers and businesses access financial products and services,” she said.

Bowman also noted that it’s “imperative” for the Fed to modernize its evaluation of competition “to more consistently and comprehensively factor in all competitors in a market and consider how to address markets where deposits are a poor proxy for the full cluster of products and services offered to consumers and small businesses.”

Bowman said “getting this right” is particularly important for community banks and “getting this wrong” would be “felt acutely” in rural areas—especially where populations have declined such that local institutions have trouble achieving the scale to compete with out-of-market banks or nonbanks operating on a national or regional scale.