Fed’s Bowman Pivots From Wall Street Lenders to Community Banks

Core Viewpoint - The Federal Reserve is expected to increase its focus on community banks, with Vice Chair Michelle Bowman emphasizing their importance, although specific plans have yet to be announced [1][2]. Group 1: Community Banks' Current Challenges - Community banks are under significant pressure, competing with fintech companies for deposits and facing challenges from private credit that attracts borrowers away from local banks [3]. - The community bank industry highlighted their differences from failed lenders during the 2023 regional banking crisis and opposed contributing to the government's deposit insurance fund [3]. Group 2: Regulatory Framework and Proposals - Industry groups are advocating for the community bank leverage ratio, an alternative to risk-based capital measures, with only 1,662 out of over 4,000 community banks opting into it as of Q1 2025 [4]. - The head of the Conference of State Bank Supervisors called for a re-examination of compliance regulatory frameworks, suggesting that static, asset-based thresholds should be adjusted to align with economic growth [5]. Group 3: Engagement and Outreach - Bowman's approach to community bank reforms emphasizes outreach to understand significant threats to their business and the impact of regulations on their operations [6]. - While seeking feedback from community banks, proposals to ease regulations for large Wall Street banks are already in progress, including a rollback of the enhanced supplementary leverage ratio and an overhaul of stress tests [6]. Group 4: Capital Standards and Risks - Bowman is leading the development of a new risk-based capital proposal related to the Basel III endgame, having previously criticized a plan that would have increased capital requirements for large banks by 19% [7]. - Fed Governor Michael Barr warned that rolling back capital standards for large lenders could jeopardize protections for smaller banks, emphasizing that the 2008 financial crisis was driven by excessive risk-taking from the largest firms, not community banks [8].