Fed Plans Review of Banking Regulations
The Federal Reserve’s top banking official informed the U.S. Senate that a review of banking regulations is anticipated by the end of March, primarily aiming to enhance mortgage lending.
Michelle Bowman, the Fed’s Vice Chair for Oversight, spoke before the Senate Banking Committee, detailing that the Fed has come to an agreement with other regulators regarding Basel III, a set of rules for banks that emerged following the financial crisis. She indicated that the review would involve capital requirements intended to motivate traditional banks to reenter the mortgage lending sector.
Bowman shared insights from her time running a community bank in Kansas and her role as the commissioner of the Kansas State Bank. She highlighted how Dodd-Frank and Consumer Financial Protection Bureau rules have made mortgage lending more difficult post-crisis, leading many community banks to exit the market, which ultimately impacts consumers.
“As we evaluated our strategy with Basel, we focused on realigning our approach to mortgage lending and encouraging banks to engage in this space again,” Bowman mentioned to lawmakers.
Following the financial downturn from 2007 to 2009, traditional banks significantly reduced their mortgage lending efforts. Bowman explained that the Fed, along with the OCC and FDIC, will propose adjustments to capital requirements aimed at ensuring that regulators weigh risks appropriately while avoiding the pitfalls that led to the past crisis.
She also pointed out that other challenges must be addressed, including CFPB regulations that impose strict standards and substantial penalties on banks for errors in mortgage applications.
“I think it’s essential for banks to take a broader and more holistic view as they consider returning to mortgage lending,” she remarked.
In a recent speech, she first floated the idea of modifying capital requirements to encourage mortgage lending, asserting that these changes wouldn’t compromise the safety and integrity of the banking system.
