Fed Governor Proposes Regulatory Reform

Federal Reserve Board Governor Michelle W. Bowman called for enhancing oversight of supervisors, streamlining de novo bank formation, modernizing merger and acquisition approval processes and reducing regulatory inefficiencies.

In a speech at The American Bankers Association 2025 Conference for Community Bankers, Ms. Bowman criticized current bank supervisory and regulatory practices, arguing that "opacity in supervisory expectations," ineffective bank application process and failures to prioritize financial risk over non-financial concerns are undermining the competitiveness of US banks.

Ms. Bowman outlined key areas for reform:

On Supervision.

Ms. Bowman raised concerns about the lack of public visibility into the supervisory process, particularly in how banks receive regulatory ratings. She noted that while some information is disclosed, data in regulatory reports makes it difficult to understand the true condition of the banking system. She pointed to the Fed's Supervision and Regulation Report, highlighting that only one-third of large financial institutions received "satisfactory ratings," despite most banks meeting capital and liquidity requirements.

She questioned whether "subjective examiner judgment" on non-financial risk could be driving the ratings process. While acknowledging that non-financial risks matter, she argued that they should not be the primary driver of bank ratings, particularly when these issues take years to remediate.

She also criticized the overuse of "horizontal reviews," which compare banks against each other. She argued these reviews discourage competition.

On the Applications Process.

Ms. Bowman asserted that, despite demand for new bank charters, new bank formation remains stagnant. She attributed this to an opaque and burdensome application process that discourages applicants before they file. She also pointed out that Fed staff may lack experience in handling new bank proposals and proposed creating a specialized de novo review team.

Ms. Bowman criticized the Fed's handling of bank mergers, arguing that long approval timelines and subjective regulatory hurdles create uncertainty and delay industry consolidation. She took issue with how competitive reviews are conducted, arguing that the Fed's analysis ignores competition from credit units and FinTechs, which creates a distorted picture of market competition.

Ms. Bowman called for reforms to the public comment process. She noted that adverse public comments—often based on information regulators already review—unnecessarily delay the process

On Regulation.

Ms. Bowman urged regulators to review existing rules to ensure they remain relevant. She called for a comprehensive review of banking regulations, including the "underwhelming" Economic Growth and Regulatory Paperwork Reduction Act ("EGRPRA") process, which requires federal banking agencies to identify outdated or overly burdensome regulations.

On anti-money laundering, Ms. Bowman said that outdated rules and excessive compliance requirements are contributing to de-banking. She argued that the currency transaction report threshold has not been updated in over 50 years, which has led to over-reporting of transactions (with little real risk). She said that excessive AML compliance burdens disproportionately affect small business and legitimate customers who are perceived as compliance risks.