Credit Unions, Nonbanks Should Be Subject to Same Regulatory Expectations as Banks

Posted: Oct 16 2024

Credit unions and other nonbanks should be subject to the same regulatory and supervisory expectations as banks if they are engaged in the same activities, Federal Reserve Governor Michelle Bowman said. Speaking at the Community Bankers Symposium in Chicago, Bowman outlined several challenges facing community banks, including competition from nonbanks. She also criticized regulators for exacerbating some of the risk management challenges facing banks.

A core concept in financial regulation is to impose the same regulation on entities that are engaged in the same activities, Bowman said. She suggested policymakers expand that principle to include the same regulation, guidance and supervisory expectations.

Community banks often face disadvantages when competing with nonbank revivals, which may not be subject to taxes or regulations such as the Community Reinvestment Act, Bowman said. “[Banks] are also subject to a broader range of restrictions imposed by regulatory requirements or the ‘soft’ power of supervision. In all of these cases, the disparity in the legal framework can have a distortive effect on competition.

“In short, where the financial regulatory framework can provide for parity of treatment, it should do so,” she said. “The regulatory framework should not knowingly distort competition, or effectively impose a regulatory allocation of credit.”

At the same time, one of the greatest challenges facing community banks is not managing any particular risk but rather how to address all of the risks they face, and how to prioritize the approach to tackling those risks, Bowman said. Regulators have sometimes exacerbated these challenges through policy choices, she added.

“Both regulators and banks should be working toward a common goal — a banking system that supports economic activity throughout the country, in which banks operate in a safe and sound manner and in compliance with consumer laws and regulations,” she said.

To view Bowman’s speech, visit: https://www.federalreserve.gov/newsevents/speech/bowman20241011a.htm