The Federal Reserve’s role as a banking supervisor is not to replace a bank’s management and board of directors in adopting banking strategy and risk appetite, Fed Governor Michelle Bowman said today. Speaking at the American Banker Association’s Conference for Community Bankers in Orlando, Bowman touched on a wide variety of topics, from the agency’s regulatory approach to bank mergers to her outlook for the federal funds rate. But one thing she wanted to make clear was her commitment to what she characterized as the widely held view that the Fed shouldn’t make credit allocation decisions for banks.
“Instead, it is to apply appropriate, targeted regulation and supervision, in order to be able to assess that when a bank engages in an activity, it does so in compliance with applicable laws and in a safe and sound manner,” Bowman said. “This can be a difficult balance to strike, but it is something I believe we must always bear in mind whenever the Fed uses or proposes using its regulatory or supervisory tools. Banking regulation and supervision should not be the place to implement new policies that are not mandated by Congress.”
In terms of bank mergers, Bowman noted there has been a recent increase in the average process time of merger applications, and said she is concerned that longer wait times could become the new normal. She also reiterated her objections to how that process could be abused. “I continue to believe the applications process should not be used as a substitute for rulemaking if the rules applicable to a firm or group of firms needs to be updated.”
Bowman also spoke about Fed rules for tailoring regulation to more closely match banks’ risk profiles, saying that approach will feature prominently in the upcoming proposed revisions to the capital framework. “While I expect the board will propose new capital requirements for the largest institutions, including the Basel III ‘endgame’ reforms, I do not expect every tier of firms to be subject to the same changes. And my understanding is that there are no plans to propose changes to the community bank capital framework as part of this capital review,” she said.