Bowman suggests lowering community bank leverage ratio

Federal Reserve Vice Chair for Supervision Michelle Bowman is suggesting lowering the community bank leverage ratio threshold to 8 percent from 9 percent, saying it could increase participation and free up lending capacity. .Speaking Aug. 9 during the Kansas Bankers Association 2025 CEO & Senior Management Summit, Bowman said the leverage ratio, introduced as a simplified capital framework for qualifying banks, has seen limited adoption. Less than half of the nation’s 4,022 community banks have opted in. Smaller institutions are more likely to use it, with more than half having less than $1 billion in assets, compared to 26 percent of larger community banks.The leverage ratio is an optional framework adopted by the Federal Reserve, FDIC and the Office of the Comptroller of the Currency. The ratio is intended to simplify capital requirements. Bowman listed other priorities, including addressing long-standing capital constraints for mutual banks, removing reputational risk from the examination process to prevent “de-banking,” and updating supervisory guidance, thresholds and anti-money-laundering requirements.“These smaller institutions are critical to local economies,” Bowman said. “We have an opportunity to create a framework that supports their vitality for years to come.”Bowman said liquidity rules are also under review, particularly proposals requiring banks to rely more heavily on the Federal Reserve’s discount window, even when more affordable funding options like the Federal Home Loan Banks are available. Bowman said such changes should be based on clear evidence of need, not assumptions.Bowman signals support for three interest rate cuts in ’25 Bowman still supports three interest rate cuts this year from the Federal Open Market Committee, expressing concern that delaying action could harm the labor market and slow economic growth.Bowman said recent inflation pressures have largely been driven by one-time, tariff-related price hikes, and she expects inflation will return to the FOMC’s long-term 2 percent target as that impact fades. On July 30, the FOMC kept the federal funds target rate at a range of 4.25 percent to 4.5 percent. Bowman and fellow member Christopher Waller dissented, the first time two Fed governors have dissented since 1993. President Donald Trump had called for the FOMC to lower borrowing costs. Bowman said the lag between policy changes and their economic impact makes it appropriate to lower interest rates to prevent weakening employment. Bowman said recently lower survey response rates and changes in immigration and business creation have made interpreting labor market data more challenging. “A proactive approach,” Bowman said of lowering interest rates, “would help avoid further erosion in labor market conditions and reduce the risk of a larger correction later.”FraudBowman also touched on artificial intelligence-driven fraud risks for community banks. AI-driven schemes are making it harder for banks to protect customers, she said. Techniques now include mimicking voices and images — even over video — to bypass multi-factor authentication and impersonate account holders.“Addressing fraud will require a coordinated strategy involving banks, federal and state regulators, law enforcement, bank customers, the Postal Service, and others in the payments and tech industry,” Bowman added.