Community banks were happy about Governor Michelle W. Bowman taking office and becoming a member of the Board of Governors of the Federal Reserve System in November 2018. Community banks were happy because they were hoping for a better regulatory requirement approach towards community banks, as Ms. Bowman was herself a community banker. Since she was the vice president of Farmers & Drovers Bank from 2010 to 2017, she has an in-depth understanding of the problems faced by community banks.
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It seems that community bankers were right to have good hopes from Ms. Bowman, as she talked about how important community banks are and how the Federal Reserve was focusing on ensuring a better future for community banks. Ms. Bowman was speaking at the ABA Conference for Community Bankers, held on 11th February in San Diego. 360factors was also present at the event, and Carl L. McCauley, 360factors CEO lead a session on AI and Community Banks. Ms. Bowman also talked about how she herself understood the importance and challenges of community banks and was dedicated to improving the outlook of community banks.
Community Banks and Regulatory Compliance Requirements
The financial crisis we went though in 2008 has resulted in stricter regulatory requirements for banks. The regulatory bodies realized how damaging the demise of a single bank can be and ensured that new rules were put in place. These rules weren’t put in place just to protect the banks, but to increase oversight and regulations to ensure that banks couldn’t damage the whole system again. While this is a good approach for bigger banks, it was not a good approach for community banks. The rising costs and complexities of the regulatory compliance requirements for banks were particularly hard on community banks.
Another problem was that there was no need for such strict rules for community banks – community banks mostly have local presence and present no threat or risk to the nation’s economy. Ms. Bowman directly addressed this point, and said:
In view of these goals and contributions, and an understanding that systemic risk is not likely to be posed by any single community bank, the Federal Reserve continues to tailor supervision and refine our approach to risk-focused examinations of community banks.
She clarified that the Federal Reserve understood that community banks can have more freedom than banks which can damage the whole economic system. The largest banks in the country are so deeply entrenched in the economy that if they act in a high-risk manner, they also raise risks for every other industry in the country. The regulatory compliance requirements for these banks should not also apply to community banks. Ms. Bowman said:
Similarly, we want to ensure that rules that address the risks posed by the business models of the largest banks do not unintentionally create barriers to entry or unnecessary burden for community banks.
Easing the burden on community bankers
The main focus of Governor Michelle W. Bowman was on easing the regulatory requirements for banks that are operating within communities. The full text of her speech can be read here on the Federal Reserve website. She talked about decisions that had already made (raising asset thresholds, extended on-site examination cycles for banks with assets lower than $3 billion, and the BETR program), as well as proposals they were considering. These proposals include raising the threshold for when an appraisal is required in real estate deals as well as adding an exclusion in the Volcker rule for community banks.
These are very positive developments and show that the federal authorities truly recognize the role that community banks play all across the country and are dedicated to listening to community banks to improve the situation.
If you are a community banker looking for a solution that can help you lower the burden on your bank caused by regulatory compliance requirements, then you should look at what Predict360 can do for your organization. Talk to our team for a trial and a demo of the cloud GRC solution that is designed for small to medium banks and helps banks reduce costs, achieve better compliance, and improve risk management.
About the Company
360factors, Inc. (Austin, TX) helps companies improve business performance by reducing risk and ensuring compliance. Predict360, its flagship software product, vertically integrates regulations and requirements, policies and procedures management, risks and controls, audit management and inspections, and on-line training and qualifications, in a single cloud-based platform based on artificial intelligence.