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Financial Services Law Insights and Observations

Fed’s Bowman discusses the economy and bank supervision

Bank Regulatory Federal Issues Federal Reserve Cryptocurrency Digital Assets CRA FedNow Climate-Related Financial Risks

On January 10, Federal Reserve Governor Michelle W. Bowman spoke before the Florida Bankers Association Leadership Luncheon regarding the economy and bank supervision. In her remarks, Bowman said that inflation is “much too high” and that her focus is on “bringing it down toward our 2 percent goal.” Bowman stated it is a “hopeful sign” that unemployment has remained low. However, she acknowledged that it is likely that as a part of the process, “labor markets will soften somewhat before we bring inflation back to our 2 percent goal.”

Regarding crypto, Bowman said that crypto activities may “pose significant risks to consumers, businesses, and potentially the larger financial system.” She also said that there is “dysfunction” in cryptomarkets, “with some crypto firms misrepresenting that they have deposit insurance.” She also mentioned “the collapse of certain stablecoins, and, most recently, the bankruptcy of [a cryptocurrency exchange platform].”

Bowman additionally discussed the Fed’s push for a real-time payments system. Since 2019, the Fed has been working to launch FedNow, a new faster payments system that will be available in the first half of 2023. According to Bowman, “FedNow will help transform the way payments are made through new direct services that enable consumers and businesses to make payments conveniently, in real time, on any day, and with immediate availability of funds for receivers.” As previously covered by a Buckley Special Alert, in June, the Fed issued a final rule on its FedNow instant-payments platform that offers more clarity on how the new service will work while essentially adopting the proposed rule. She also noted that FedNow will enable depository institutions of every size to provide “safe and efficient” instant payment services.

Regarding climate change, Bowman noted that the Fed views its role on climate “as a narrow focus on supervisory responsibilities and limited to our role in promoting a safe, sound and stable financial system.” She also noted that the Fed’s recent climate guidance only applies to banks with more than $100 billion in assets. Bowman also disclosed while “climate supervision effort is a new area of focus, it has been a longstanding supervisory requirement that banks manage their risks related to extreme weather events and other natural disasters that could disrupt operations or impact business lines.”

Additionally, Bowman provided a Community Reinvestment Act (CRA) update. She said that the CRA, which requires the Fed and other banking agencies to encourage banks to help meet the credit needs of their communities, “was last updated 25 years ago.” As previously covered by InfoBtytes, in May, the Fed, FDIC, and OCC issued a joint notice of proposed rulemaking on new regulations implementing the CRA to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. The CRA proposal, which she is fully supportive of, “reflects these industry changes, including recognizing internet and mobile banking services, it also attempts to provide clarity and consistency, and it could enhance access to credit for these low- and moderate-income communities

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