Insights from Michelle Bowman on fostering innovation, de-banking measures, and combating fraud
In a series of speeches, Federal Reserve Governor Michelle Bowman has outlined her vision for a regulatory framework that embraces innovation in finance, particularly in the digital asset sector and artificial intelligence.
Bowman advocates for a risk-focused approach to supervision, emphasizing the need to avoid over-broad regulations that could stifle innovation or lead to excessive costs and industry consolidation. She calls for regulatory frameworks to be revised to better integrate innovation, recognizing the growing importance of digital technologies and AI.
One of Bowman's key concerns is the cost of compliance, which she believes falls to banks and their customers. She suggests reasonable constraints on banking agency growth to ensure efficiency while maintaining safety and soundness.
Bowman also advocates for smarter regulation, stating that as regulatory and supervisory demands grow, there is often parallel growth in the staff and budgets of the banking agencies. She argues that these costs should be cognizant of.
In addition, Bowman has expressed concerns about banks inadequately serving conservatives and the need for regulators to change approaches that have resulted in credit allocation decisions. She believes that these decisions should not be dictated by banking regulations or supervisory messages.
Regarding de-banking decisions, Bowman favors more transparent and efficient regulatory approaches that would reduce unnecessary obstacles for banks and fintech firms alike. This includes addressing regulatory processes that can delay necessary expansions or service offerings, implying a preference against overly cautious or opaque restrictions that could contribute to de-banking.
Bowman also criticizes a "more is better" approach taken by some regulators, expressing concerns about an onslaught of proposed and final regulations and guidance. She believes that this approach does little to address the underlying root causes of an increase in fraud and can be frustratingly slow.
It is worth noting that Bowman does not discuss an open-minded approach to innovation and technology adoption or improvement of the supervisory process to focus more on core financial risks and less on process in this paragraph.
In terms of the digital asset sphere, Bowman has emphasized the importance of understanding the risks and benefits of new technologies before developing a supervisory posture. She has not discussed specific fintech disruptions in the banking industry in this paragraph.
Bowman's vision for regulation aligns with calls to avoid techno-solutionism—overreliance on technological fixes without understanding financial risks—and instead adopt informed skepticism sensitive to the potential harms fintech innovations might cause.
The Securities and Exchange Commission launched a task force last month devoted to developing a regulatory framework for the digital asset sector, and the Federal Reserve, according to Bowman, should prioritize encouraging long-term business investment to avoid reducing the availability of banking services.
Michelle Bowman is a front-runner to serve as the Fed's next vice chair for supervision, with Michael Barr resigning effective Feb. 28. As Bowman takes on this role, her vision for a risk-focused, innovation-friendly supervision with transparency and efficiency improvements is likely to have a significant impact on the future of banking regulation.
[1] Federal Reserve Governor Michelle Bowman's speech to the Kansas Bankers Association, 14 October 2021. [2] Federal Reserve Governor Michelle Bowman's speech at the Milken Institute's 2021 Global Conference, 20 October 2021. [3] Federal Reserve Governor Michelle Bowman's speech at the Consumer Bankers Association's 2021 Virtual Convention, 2 November 2021.
- Federal Reserve Governor Michelle Bowman, in her speeches to the Kansas Bankers Association, the Milken Institute's 2021 Global Conference, and the Consumer Bankers Association's 2021 Virtual Convention, has emphasized the need for a regulatory framework that supports business innovation, particularly in finance and technology sectors, while advising against over-broad regulations that could hinder progress or impose excessive costs.
- As part of her call for transparent and efficient regulation, Bowman has advocated for revisiting regulatory frameworks to better integrate innovation in finance, technology, and business, recognizing the growing importance of digital technologies and AI in the industry.
