Policymakers should ensure the response to recent bank failures does not undermine regulatory tailoring and risk-based supervision, Federal Reserve Governor Michelle Bowman said.

Tiered Regulation: Speaking in Texas, Bowman said overseeing banks based on their size, risk, business model, and complexity provides appropriate proportionality to regulatory oversight. “It is simply common sense that what works well for the largest global systemically important banks is not appropriate for regional and community banks,” she said.

Risk of Overregulation: “The view that we extend the reach of overly complex and outsized regulatory requirements to banks that are smaller and less complex ignores some likely results—doing so will lead to bank consolidation, and will potentially push banking activities outside of the regulated banking system,” Bowman said.

The Path Forward: Bowman said policymakers should instead focus their response on:

  • Conducting an independent third-party review to ensure an impartial understanding of the failures of Silicon Valley Bank and Signature Bank of New York.

  • Ensuring supervisors do a better job of using the existing regulatory toolkit to identify key issues and risks, rather than creating more tools.

  • Considering targeted reforms that might be necessary without using the failures as a pretext to push for unrelated regulatory changes.

Background: Bowman is the first person to fill the Fed’s community banking seat, which was instituted by Congress in 2015 due to ICBA’s successful advocacy.

Industry Differentiation: Addressing the ICBA Capital Summit last week, ICBA President and CEO Rebeca Romero Rainey said ICBA has worked relentlessly to differentiate community banks from larger institutions in the wake of the failures, leading to the FDIC’s proposal to fully exempt community banks under $5 billion from paying any special assessment to replenish the Deposit Insurance Fund.

Ongoing Campaign: Community bankers can use resources available in the ICBA National Campaign Toolkit to help spread the word about the community bank difference. The campaign has achieved 100 million impressions, and its video advertisements have been viewed to completion more than 20 million times.

More: During last week’s Capital Summit, ICBA also announced its 2023 Policy Resolutions and released new national and state-level polling data showing Americans in all 50 states have an increasingly favorable view of community banking.