Bowman: Regulatory tailoring essential for community banks

Editor's note: This column was included in the Feb. 6 version of The Pulse, a weekly BankBeat newsletter sent to subscribers..Regulatory tailoring is crucial to ensure the future viability of community banking, said Federal Reserve Gov. Michelle Bowman last week in a speech at the New England CEO Summit in Portsmouth, N.H. .Speaking Jan. 31, Bowman said tailoring regulations based on the size and risk profile of banks can also ensure credit remains affordable and accessible. Bowman said the lack of tailoring could lead to more underbanked and unbanked Americans.."Tailoring is important for all banks, but it is particularly important for community banks," Bowman said. "There are real costs not only to banks, but to communities, when the framework is insufficiently tailored, as community banks faced with excessive regulatory burdens may be forced to raise prices or shut their doors completely." . Bowman criticized what she sees as the lack of tailoring in Community Reinvestment Act requirements. She said the finalized rule demonstrated "a missed opportunity to promote greater effectiveness and efficiency." .Bowman also criticized the Federal Reserve's third-party risk management guidance issued last year for all banks. The guidance established that banks' use of third parties does not reduce or eliminate consumer protection and customer information security laws and regulations. Bowman has called for simplifying the requirements..Bowman said bank regulators have not focused enough on fraud and are putting too much emphasis on climate change. "Banking regulators should not dictate credit allocation decisions, either by rule or through supervision," she added. "Bank regulatory policy should be used to address the needs of the unbanked and expand the availability of banking services. 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." .Bowman said regulators must be more transparent in the rulemaking process to prevent bankers from being unclear on the permissibility of potential banking activities. She also called for more flexibility and predictability in de novo formations and M&A while eliminating "trickle-down" regulations. .Bowman's speech came less than a week before House Financial Services Committee Rep. Roger Williams, R-Texas, introduced a bill to repeal Section 1071 of the Dodd-Frank Act. The rule would require financial companies to collect and report small business lending data to the Consumer Financial Protection Bureau. .Bowman's comments came as speculation continued on whether President Donald Trump will appoint her to a new position. Bank groups in all 50 states recently asked Treasury Secretary Scott Bessent to choose Bowman as the Fed's vice chair for supervision. She has frequently spoken against proposed bank regulations and guidance introduced over the last four years under the administration of former President Joe Biden.