Michelle W Bowman: Building a community banking framework for the future
Speech by Ms Michelle W Bowman, Member of the Board of Governors of the Federal Reserve System, at the 2024 Community Banking Research Conference, sponsored by the Federal Reserve System, the Conference of State Bank Supervisors, and the Federal Deposit Insurance Corporation, St. Louis, Missouri, 2 October 2024.
The views expressed in this speech are those of the speaker and not the view of the BIS.
It is an honor to return to St. Louis for the 12th year of the Community Banking Research Conference. This conference is a model of effective partnership between the Federal Reserve and the Conference of State Bank Supervisors, and more recently, the Federal Deposit Insurance Corporation (FDIC). It is an opportunity for us all to dig deeper into the community banking model and the important role of community banks now and into the future. Together, regulators work to ensure that the approach to supervision and regulation is fit for purpose, and that each element of both supervision and regulation acts in a complementary manner. Policy disagreements are a healthy part of the process, but we must also strive to build consensus where we can. At a minimum, we must understand and respect our counterparts' and colleagues' viewpoints. Ultimately, we all share the same goal of promoting a safe and sound banking system.
The strength of the U.S. banking system relies upon the diversity of its institutions, and facilitating an environment that allows each category of bank to thrive is essential to fostering a healthy financial system. For community banks, this includes building a framework that better supports the unique characteristics of these institutions. Today, my remarks will consider three foundational questions as we contemplate revising the community banking framework: (1) Given the continued evolution of the banking system, how should a community bank be defined? (2) Are we pursuing the most appropriate approach to supervision and regulation of community banks, and finally, (3) How can we build a policy framework that better supports and anticipates this evolution of the banking system now and into the future?
How to Define a Community Bank
By necessity, regulators divide banks into more manageable categories. The Federal Reserve has distinct portfolios that oversee "community," "regional," and four "categories" of larger banks. The Federal Reserve and federal banking agencies further subdivide these portfolios based on additional factors. They may also depart from this framework altogether to group banks across portfolios or based on other common features.