FRB Governor Bowman Reiterates Criticism on Banking Proposals and Guidance
Commentary by Steven Lofchie
Federal Reserve Board ("FRB") Governor Michelle W. Bowman criticized several recent banking proposals, calling on regulators to "appropriately calibrate and prioritize their supervisory and regulatory actions." (See also, here).
In her remarks before the New York Bankers Association's Financial Services Forum, Ms. Bowman raised concerns as to the following bank regulatory proposals:
- Basel III Capital Proposal. Ms. Bowman stated that the proposal "is not a mere implementation of the Basel standards" but rather "far exceeds the Basel standards mandate."
- Community Reinvestment Act ("CRA"). Ms. Bowman described the proposal as "unnecessarily complex, overly prescriptive, and directs outcomes that result in disproportionately greater costs than benefits."
- Interchange Fee Cap Proposal. Ms. Bowman criticized the proposed amendments to the regulatory cap on debit card interchange fees for applying a single cap to all covered issuers regardless of size, business model or product offerings. She also warned that intended benefits of the Proposal "may not be realized" by consumers.
- Climate Guidance. Ms. Bowman argued the that the FRB-, FDIC- and OCC-issued final guidance on the sectors approach to climate-related financial risks will "create confusion regarding supervisory expectations." She said that the final guidance will, however, increase bank costs without a "commensurate improvement" to financial safety.
To address these issues, Ms. Bowman suggested a more data-driven analysis for the Basel III Capital Proposal and a more thorough understanding of the impacts of the Interchange Fee Cap Proposal. She also proposed that community banks should be able to opt in to the new retail lending test and assessment areas under the CRA. She reiterated that the FRB should prioritize core banking risks rather than risks from climate change.
Commentary
Governor Bowman's comments as to the scope of banking regulator authority have much in common with SEC Commissioner Uyeda's recent comments on SEC rulemaking. They both warn against regulators who want to make the world a better place, whether as to social change or climate change, and rationalize the expansion of their regulatory authority to do so. But these are not tasks within the plain scope of the regulators' statutory missions, and in a world of limited resources, the economy would do better if the regulators concentrated their attention and resources more narrowly.