The Federal Reserve’s top banking regulator outlined several priorities Wednesday that she said could ease regulatory burdens for community banks.
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Fed Vice Chair for Supervision Michelle Bowman, speaking at an event hosted by the California Bankers Association, said the central bank is considering changes to its regulatory framework, including updating asset thresholds and separating oversight of community banks from supervision of larger and regional institutions.
Bowman — who also serves as the Fed’s designated community bank representative — said the current practice of categorizing banks by asset size alone is often imprecise and should be reconsidered.
“Many of these portfolios rely on only a single, fixed asset level, like the definition of a community bank at $10 billion or a large bank at $100 billion,” Bowman said. “This type of definition relies only on the bank’s asset size regardless of its activities, business model, or risk profile.”
She said those definitions have shortcomings because they fail to account for economic growth and inflation over time.
“Looking ahead, we will reconsider these regulatory thresholds and will work to support Congress in updating thresholds that have become outdated and too low relative to the broader economy,” Bowman said. “A simple solution would be to adjust thresholds by nominal GDP, which includes both economic growth and inflation. Doing so will result in a more robust and resilient system over time, proactively integrating indexed changes into the framework.” Bowman also suggested regulators may need a more nuanced approach than single-metric, asset-based thresholds.
“I look forward to working with Congress and my regulatory colleagues to address these and other opportunities to update the regulatory framework,” she said. “I also support taking a comprehensive approach to indexing statutory requirements broadly across all financial agency authorities, including for requirements that I did not directly reference in my remarks today.”
During her speech Wednesday, Bowman said the Fed should consider more tailored supervision for community banks that better reflect their risk profiles. One option, she said, would be to separate the community bank oversight program from those used for larger and regional banks.
“Community banks should be subject to strict supervisory oversight, but it must be commensurate with their smaller size, simpler business activities, and the modest risks they pose to U.S. financial stability,” Bowman said. “This would also eliminate the temptation to ‘push down’ standards and expectations to community banks that were designed for larger and more complex institutions.”
Bowman also said modernizing reporting and application requirements for community banks should be a priority. She said quarterly bank call reports can impose a disproportionate burden on smaller institutions and suggested that collecting less data could help regulators focus on the most meaningful information.
“This certainly is a departure from recent regulatory approaches, in which more is always better,” Bowman said. “But collecting less information can help ensure we are focused on the right and most valuable information.”
Since stepping into her role as the Fed’s top regulator in mid-June 2025, Bowman has moved to streamline parts of the central bank’s supervisory framework.
In an October memo, supervisory staff were told to focus on the Fed’s responsibility to promote the safe and sound operation of banks and to step away from “excessive attention to processes, procedures and documentation that do not pose a material risk.” The memo said such practices can be a distraction from the core mission of ensuring safety and soundness in the banking system.
The central bank has also moved to release the stress-testing models it uses to gauge the largest U.S. banks’ resilience under economic pressure as a way to increase transparency. The reorganization of certain supervisory practices comes alongside plans to reduce the supervision and regulation division’s staffing by 30% by the end of 2026.