Michelle W Bowman: Bank mergers and acquisitions, and de novo bank formation - implications for the future of the banking system

Good morning. Before I provide some context for today's discussions, I would like to thank all of our participants who are here with us today in Kansas City at the Reserve Bank, and those participating remotely. Most importantly, I'd like to thank our host, President Schmid, and his excellent research staff, all of whom helped to organize today's event. I especially appreciate the opportunity to highlight a few specific areas that concern me about the currently regulatory trajectory and their effects on the future of banking.

Today's workshop addresses timely and important questions, including the forces that will shape the future of the banking system, entry into the banking system, bank mergers and acquisitions, and the state of competition including both the direct and indirect competition banks experience and how regulators measure and assess competition-or at least how we broadly measure it today.

The failures of Silicon Valley Bank and Signature Bank just over a year ago, and the stress to the banking system that ensued, caused many institutions to retrench and prompted regulators to renew their focus on bank regulatory and supervisory policy and approach. Banks responded by enhancing their focus on fundamental risks like interest rate and liquidity risk, adopting a more conservative posture in both risk management and lending. This self-reflection by both industry and regulators continues today. In fact, the long shadow of the bank failures continues to be a driving force for regulatory and supervisory reforms, even for reform proposals that have little relationship to the events surrounding the bank failures and ensuing banking system stress.

As I have noted in the past, the regulatory reform agenda, and the less visible but no less important changes to the supervisory process, touch on a wide range of topics that directly and indirectly affect banks of all sizes. The sheer volume of changes presents challenges to regulated institutions. Outside of the largest banks, how does bank management review and provide meaningful comment on voluminous regulatory changes? When those changes are finalized, how does a bank's management reallocate resources to ensure a capability to comply with revised regulations? Are banks, especially small banks, able to locate and retain qualified staff to understand and implement these increasingly complex and burdensome rules? How does a bank's management and compliance officer adjust to supervisory standards and expectations that may be significantly different from exam to exam or regulator to regulator?