FRB Governor Bowman Says Banking Competition Framework Must Be Updated to Include New Competitors

Federal Reserve Board ("FRB") Governor Michelle W. Bowman urged the FRB to update its framework for evaluating competition within the banking industry.

In remarks at the 2022 Community Banking Research Conference, Ms. Bowman argued that the FRB must adapt to a changing landscape and ensure its framework encompasses the full range of competitors, as well as new bank products and services. She said that the failure of the FRB to develop a more comprehensive framework regarding bank industry competition may provide certain institutions with a competitive advantage over others. "As these new competitors increasingly provide consumers with alternative delivery channels for the cluster of banking products and services they desire, we need to make sure we take appropriate steps to understand the competitive pressure they exert and modernize our approaches to measuring competition," said Ms. Bowman.

Ms. Bowman highlighted that:

• the number of bank charters has declined approximately 20 percent in the past 10 years;

• the FRB's geographic definition of banking market requires "constant analysis and regular updating," and there is currently no means by which the FRB can comprehensively evaluate the full range of commercial banking products and services in a given market;

• there has been a recent increase of credit unions acquiring community banks, and credit unions are more likely now to compete directly with traditional banks in offering a full range of banking products and services; and

• nonbank FinTech firms are now "viable competitors for nearly all types of loan products, bust most prominently consumer loans, small business loans, and student loans."

Ms. Bowman argued that an FRB competitive analysis should cover:

• "systematic inclusion of credit unions";

• consideration of digital bank deposits; and

• incorporation of nonbank financial firms in all competitive analyses.

Ms. Bowman also recommended that the FRB review and update its framework for analyzing bank mergers so as to "apply a transparent, dynamic framework that allows the industry to evolve with market conditions and apply sensible regulatory oversight." She argued that "size should not be the controlling factor," and any review of banking merger oversight must ensure that the framework (i) is publicly available and understood; (ii) reflects "actual market conditions"; and (iii) considers a more comprehensive range of competitors to banks regarding financial products and services.