Fed’s Bowman: Community Reinvestment Act rule could harm banks

The proposed interagency Community Reinvestment Act modernization rule is unnecessarily complex, overly prescriptive and would result in a significantly greater regulatory burden for all banks, especially community banks, Federal Reserve Governor Michelle Bowman said today. Bowman was the only member of the Fed board to vote against moving forward with the CRA final rule last month. Speaking at an Ohio Bankers League conference, she spelled out her concerns with the rule, saying its positives are outweighed by its negatives.

“First and foremost, the final rule applies the same regulatory expectations for small banks as it does for the largest banks,” Bowman said. “For example, a wide range of community banks—those with more than $2 billion in assets—are treated as ‘large banks’ under the final rule, forcing these banks to comply with the same CRA evaluation standards as a bank with $2 trillion in assets.” She also said that the rule exceeds the authority granted by Congress, particularly provisions to evaluate banks outside of their deposit-taking footprint.

“Perhaps most concerning about the final rule is that it may incentivize banks to reduce their support for certain communities, forcing them to pare back lending in areas where there is a need for credit accessibility,” she said. Bowman also shared her concerns about a Fed proposal to lower the regulatory cap on debit card interchange fees. “While the board’s proposed rule suggests that it could result in benefits to consumers, I am concerned that the costs of this fee cap revision for consumers—through the form of increased costs for banking products and services—will be real, while the benefits to consumers—such as lower prices at merchants—may not be realized,” she said.