October 06, 2026 Modernizing the Regulatory and Supervisory Landscape Vice Chair for Supervision Michelle W. Bowman At the 2026 Community Banking Research Conference, sponsored by the Federal Reserve System, the Conference of State Bank Supervisors, and the Federal Deposit Insurance Corporation, St. Louis, Missouri Share --> --> --> --> --> --> Watch Live Good morning. It is good to be here with you this morning for the Community Banking Research Conference. 1 Today I will discuss the work we have under way to modernize the bank regulatory and supervision framework. These frameworks are the foundation for the long-term stability and success of the banking system, and for community banks around the country. Targeted Reforms to Support Community Banks At this conference two years ago, I described actionable approaches to support and enhance the role of community banks in the U.S. financial system. 2 Since that time, we have made progress in a number of areas. At the Federal Reserve, we have refocused supervision with our Statement of Supervisory Operating Principles. These principles focus supervision on risks that could lead to a material deterioration in a firm's financial condition. We are also improving our coordination with federal and state banking agency counterparts. Together with the OCC and FDIC, we updated the community bank leverage ratio—a material simplification of the capital framework for community banks—to the statutory level of 8 percent. We demonstrated our support for community bank innovation by eliminating the Novel Activities Supervision Program, which had operated as a barrier to innovation. We are continuing our initiative to update and index outdated asset thresholds, including the thresholds defining the scope of community banks for supervisory purposes, and making supervisory ratings (like the "M" rating in "CAMELS") more reflective of financial condition and financial risk. In issuing regulations or guidance that applies to community banks, we include tools, additional guidance, and compliance guides to clarify new expectations, like the recent compliance guide for third-party risk-management guidelines. More work remains. First, mergers and acquisitions. The Federal Reserve's competitive analysis in bank mergers has a disproportionate effect on rural banks in small and underserved markets. This analysis systematically understates the competition banks in these markets face—downplaying or ignoring credit unions, nonbank lenders, farm credit institutions, and branchless banks that compete in local markets across the country. This analysis is antiquated and harmful to community banks that may face greater difficulties in merging, even when doing so may actually create a stronger and more competitive banking environment. Second, de novo formation. In June, the FFIEC issued a statement reaffirming its support for de novo bank formation. While this was an important show of broad-based support for de novos, federal and state banking agencies can and should do more to promote new bank formation—including clarifying approval standards (like capital requirements), adhering to specific and reasonable processing timelines, and issuing conditional approvals where appropriate. Third, rationalizing and streamlining the call report. The FFIEC issued a request for information on call report streamlining in December 2025, seeking public comment about excessive burden on banks that file the call report and requesting stakeholders to identify options for streamlining. I also highlighted the necessity of community banking and state bank commission experience for those involved in regulatory and supervisory oversight processes. Understanding the business of banking and how supervision and regulation hinder or support this business is fundamental to a safe and sound banking system. Since becoming the Vice Chair for Supervision, I have served as the Board's FFIEC member, and as its chairman. During this time, we have made progress on long-standing issues within the FFIEC's purview, including updating the CAMELS rating system, which I will discuss more in a moment. Bank regulators rely on an effective and proportionate approach to bank regulation and supervision, based on size, complexity, business model, and risk profile. This includes updating asset-based thresholds to reflect changes over time and indexing them to economic growth to help ensure that they remain appropriately calibrated in the future. Asset Thresholds and Regulatory Tailoring Bank regulation and supervision must be appropriately tailored, calibrated, and updated over time. Asset thresholds that are established in regulation (like low, fixed-dollar thresholds that limit a bank's lending to directors and officers) or static standards are used to create different tiers of institutions for regulatory and supervisory purposes (like the definition of a community bank being generally set at $10 billion in assets) become irrational over time. These thresholds matter. They limit a bank's activities and impact the proportionality of supervisory oversight. Every standard reflects a policy decision at a particular point in time, but over time, without adjustment, policy judgment is replaced by a miscalibration. The Board has taken steps to address these issues. In July, we proposed revisions to Regulation O, which governs the extension of credit by banks to bank "insiders," including bank executives, board members, and major shareholders. 3 Regulation O has not been comprehensively updated since 1979. While the original transaction limits may have been appropriate at that time, these limits create a significant administrative burden on community banks and go beyond what is appropriate or necessary for safety and soundness. The Board's regulations include other thresholds that are similarly outdated. Later this year, the Board will consider updates to fixed-dollar asset thresholds in the Board's regulations to account for inflation and economic growth. The proposal will increase static thresholds, with a mechanism to update them every five years. This will preserve the policy intent at the time the threshold was implemented. This regulatory housekeeping should not require comprehensively and routinely revisiting our regulations to update thresholds so that they remain appropriate for future economic conditions, so we have included mechanisms that will allow this adjustment on a regular cadence. Later this year, the Board will consider broader structural reforms to bank portfolios defined by asset size and updates to the large bank tailoring framework. For the past 15 years, a community bank has been defined as a bank with assets of less than $10 billion. 4 Fixed asset thresholds can push a smaller noncomplex bank into a higher supervisory tier with standards designed for more complex institutions and stronger supervisory scrutiny—like those based on the risk of their activities. This approach is not appropriate for firms with straightforward business models that should be subject to the risk tier appropriate for their risk profile. Both directions of change could be appropriate if based on an assessment of a bank's activities and risk profile. By expanding the range of institutions treated as community banks that operate using a traditional community bank business model and relationship banking and appropriately modifying the supervisory expectations and regulatory requirements for these firms, we will preserve safety and soundness while effectively applying appropriately tailored and risk-calibrated supervision and regulation. Congress has given the federal banking agencies discretion to modify thresholds and to tailor requirements for institutions based on size and complexity. Our work will ensure that our requirements remain appropriate for this purpose. Refocusing Supervision on the Risk of Material Financial Harm Effective bank supervision requires an approach that prioritizes risk that can result in material financial harm. One year ago, the Federal Reserve implemented a risk-based supervisory program with the introduction of our Statement of Supervisory Operating Principles (SSOP). These principles outline our enhanced approach to supervision describing what supervisors do and how they do it for both examiners and for the broader public. 5 Publishing the SSOP enabled us to begin the process to shift our culture to encourage and direct our supervisors to return our focus to the fundamental purpose of supervision. This emphasizes our mandate to preserve safety and soundness in the banking system and support U.S. financial stability. In recent years, our examinations had drifted to focus on process over substance, prioritizing checklists of requirements instead of applying judgment and expertise to evaluate safety and soundness. The SSOP begins by reiterating the core purpose of supervision—which is to identify material vulnerabilities as early as possible and take prompt, decisive, and proportionate action to encourage or require firms to mitigate them. It then clarifies expectations for examiners to use reasoned judgment and escalate matters of concern, including where additional tools may be needed to identify or address risks. 6 The SSOP marks a turning point that memorializes the beginning of our work to address the long-standing issues in our supervisory culture. Of course, we know that the SSOP is an initial step. It must be followed up with clear expectations and actions. Therefore, we have followed that formal document with targeted examiner trainings, outreach, and necessary structural reforms to ensure these messages have permeated throughout the entire supervisory system and enhance how we conduct supervision. The Federal Reserve's supervisory approach should not be a mystery. Supervisory expectations should be transparent, clear, and consistent. A bank should not learn about and then be held accountable for changed expectations durin
