Bank regulators should be open to easing some of the unique regulatory burdens facing mutual banks, Federal Reserve Governor Michelle Bowman said today. During a speech in New Hampshire, Bowman said mutual banks have many of the same challenges as other community banks but also face challenges unique to their ownership structure.
One challenge is raising additional capital, so for that, some mutuals have turned to issuing mutual capital certificates. So far it has been unclear whether the certificates count as regulatory capital, Bowman said.
“In my view, the banking agencies should be receptive to these kinds of instruments to ensure that mutual banks can both raise capital and maintain their depositor-owned structure,” she said. “Mutuals need clarity and transparency about the regulatory treatment of these instruments and whether they qualify as regulatory capital.”
Another concern for mutuals is the annual requirement to receive regulatory approval for a mutual holding company’s waiver of a dividend issued by its subsidiary bank, Bowman said. The Fed practice has been to require a mutual holding company to submit an application each year to implement a waiver. However, the process is complex “and imposes significant costs on these small institutions, reducing the investment they can make in their communities,” she said.
“In my view, the [Fed] board should consider whether this process is effective and efficient in addressing concerns related to dividend waivers,” Bowman said.
Debanking
Bowman also used her speech to caution against “debanking,” saying that bank regulators should not dictate credit allocation decisions, either by rule or through supervision.
“Bank regulatory policy should be used to address the needs of the unbanked and expand the availability of banking services,” she said. “It should not be used to limit or exclude access to banking services for legitimate customers and businesses in a way that is meant to further unrelated policy goals, sometimes referred to as ‘de-banking’”
