Federal Reserve Governor Michelle Bowman said regulatory disparities between community banks and nonbank providers—including credit unions—can have a distortive effect on competition.
Unlevel Playing Field: Speaking in Chicago on challenges to the community banking model, Bowman said that while a core concept in financial regulation is to impose the same rules on entities engaged in the same activities, community banks compete against credit unions and nonbank lenders that aren’t subject to the same regulation, such as the Community Reinvestment Act.
Regulatory Parity: “In short, where the financial regulatory framework can provide for parity of treatment, it should do so,” Bowman said. “The regulatory framework should not knowingly distort competition, or effectively impose a regulatory allocation of credit.”
Regulatory Burden: Bowman also said regulations must be tailored to the size and complexity of activities for each bank, noting regulators “cannot ignore the ‘cumulative’ or ‘compounding’ effect of increasing the complexity of the regulatory framework.”
Regulatory Roadblocks: Bowman also pressed for a regulatory system in which mergers and acquisitions and de novo bank formations are possible, not one in which regulatory approval requirements are used to impose additional (and extra-regulatory) requirements.
