A Message from Governor Bowman
by Governor Michelle Bowman
Beginning with this edition, I will regularly contribute to our Community Banking Connections publication, to discuss topics that affect the supervision of community banks. For this edition, I will provide some background on my perspective as a community banker and state regulator, discuss the importance of open communication, and preview a few initiatives that are currently underway.
It has been just over a year since I was sworn in by Chair Powell, to serve an unexpired term in November 2018, as the first Governor to fill the role designated by Congress for someone with community banking experience on the Federal Reserve Board (Board).1 Since then, I have been working to ensure that the community bank perspective is considered in the Board’s deliberations. On February 1, 2020, I began serving a full fourteen-year term ending in 2034, and I look forward to continuing this important work.
Prior to joining the Board, I was a community banker and more recently had the privilege to serve as the Kansas State Bank Commissioner. My approach as a state bank regulator was to treat every institution and consumer fairly and respectfully, and to foster open communication between our staff and regulated entities. As a community banker, I supported local businesses, our community and consumers. Community banking influences who I am, and how I approach banking regulation and supervision.
As a Governor, my objective is to ensure our country maintains a safe and sound financial system, with strong consumer protections, and widespread access to financial services. I believe that a thriving community bank sector is absolutely essential to achieving these objectives. These goals and values are precisely those I held as a banker, when my focus was serving customers and the community.
I believe that supervision is most effective when the communication between bankers and regulators is open and honest. It must be two-way communication. Supervision should be transparent, accountable, and fair. One way that supervisors can provide more effective supervision for community banks is through improved communication and technical assistance programs. This was an important message included in my remarks at the February 2020 American Bankers Association Community Bank Conference.2 I have seen how more active and engaged communication with the industry can result in a more balanced and trusted relationship.
Since assuming my responsibilities at the Board, I have traveled widely and listened closely to many stakeholders—bankers, consumers, small business owners, and community leaders. I also host meetings with state bank associations, and have been engaged through some of the Federal Reserve’s formal programs such as the Community Depository Institutions Advisory Council and Partnership for Progress.3 Additionally, the Federal Reserve hosts “Ask the Fed” sessions, which are interactive webinars that are an opportunity for supervisors to provide guidance and answer questions directly from bankers. I look forward to building upon these foundational programs to broaden communication directly to bankers on key issues.
In addition to improved outreach and communication, adjustments to supervision and regulation programs that address excessive burden on community banks are also under consideration. Two ways to do this are: through greater risk tailoring in community bank examinations, and by harnessing the unique benefits of the Federal Reserve’s decentralized structure.
The Federal Reserve uses a risk-focusing model known as Bank Exams Tailored to Risk, to help quantify the risks posed by a bank’s activities and scale the examination accordingly.4 While much progress has been made on the financial aspects of each bank examination, at my direction Federal Reserve staff are taking additional steps to tailor and improve our examination processes to be more efficient for lower-risk banks, especially in the nonfinancial risk areas, including Bank Secrecy Act/Anti-Money Laundering compliance.
The Federal Reserve’s decentralized structure—with supervision delegated to and conducted by the 12 regional Reserve Banks—is a key feature of the system. This connection to local economies enables the Federal Reserve to fulfill both our supervisory and monetary policy responsibilities. Our geographic diversity lends itself well to cultivating positive relationships between our community banks and their Reserve Bank. Reserve Banks have the local expertise to best understand the communities and the institutions they supervise. Through empowered Reserve Banks, we optimize our supervision to ensure it adapts to the on-the-ground realities of an evolving industry and changing consumer expectations, while maintaining the goals of safety and soundness, and consumer protection.
I also chair the Board’s Subcommittee on Smaller Regional and Community Banking. The subcommittee provides guidance to staff and makes recommendations to the Board on supervisory and regulatory matters related to safety and soundness issues that have broad implications for smaller institutions for which the Board has specific statutory authority. I have also assembled a working group of seasoned supervisors from across the Federal Reserve System to review supervisory and regulatory proposals with a narrow focus on the impact to community banks. It is clear we must strive to achieve a fair balance between safety and soundness and reducing unnecessary regulatory burden, in order to ensure that community banks have the capacity to serve the needs of their communities.
I look forward to hearing your feedback. If you have suggestions or would like to provide feedback on this publication, please email: firstname.lastname@example.org. Copies of my prior speeches can be found on the Board’s public website, www.federalreserve.gov.
- 1 Created by statute in 2015, see Terrorism Risk Insurance Program Reauthorization Act of 2015, Pub. L. No. 114-1, 129 Stat. 3.
- 2 See https://www.federalreserve.gov/newsevents/speech/bowman20200210a.htm.
- 3 https://www.federalreserve.gov/aboutthefed/cdiac.htm; https://www.fedpartnership.gov/.
- 4 See Supervision and Regulation Letter 19-9, “Bank Exams Tailored to Risk,” available at https://www.federalreserve.gov/supervisionreg/srletters/sr1909.htm.