Mild criticism of proposed CRA revisions by Fed Board member focuses on cost/benefit

A proposal to update anti-redlining laws falls short in covering the costs of implementation by banks and does not explain how the benefits exceed the costs, a member of the Federal Reserve Board said Saturday.

In a speech largely devoted to her outlook on economic issues – particularly, the Fed’s role in fighting inflation through interest-rate changes and fostering full employment – Federal Reserve Board Gov. Michelle W. Bowman also touched on a variety of regulatory subjects, notably the proposed revisions to rules implementing the Community Reinvestment Act (CRA). Bowman was speaking at a convention of the Kansas Bankers Association in Colorado Springs, Colo.

“While I am a strong supporter of the fundamentals behind CRA, and I support community development activities, I am concerned that the proposal does not adequately account for the costs and benefits of certain provisions, and that no attempt has even been made to either ensure that or to analyze whether the benefits exceed the costs, which is a fundamental element of effective regulation,” Bowman told the group of bankers from her home state.

The comment period for the CRA proposal officially closed the day before Bowman gave her speech. She, nonetheless, told the bankers she hoped they had filed comments. As of late last week, nearly 200 comment letters had been filed.

Bowman also weighed in on regulatory actions to reform the guidelines implementing the Bank Merger Act. In March, the Federal Deposit Insurance Corp. (FDIC) issued a request for information (RFI) on the guidelines. The FDIC said “significant changes” over the past several decades in the banking industry and financial system necessitated a review of the regulatory framework.

The Fed governor said she would be concerned about any changes that would result in making mergers among small and regional banks more difficult or would not address some of the longstanding issues with the existing framework.

“Among those are that the framework doesn’t account for new technologies or overwhelming competition posed by credit unions, internet based financial services, and non-bank financial companies,” Bowman said. “Another concern is that overly strict criteria for mergers could have the unintended consequence of depriving consumers in some areas of access to any banking services. ‘Banking deserts’ in rural and underserved areas are a real problem and regulators should guard against this outcome when proposing or evaluating rules.”

Gov. Michelle W. Bowman: Fighting Inflation in Challenging Times