Federal Reserve Board's Bowman outlines tailored community bank supervision focused on material financial risks

In opening remarks at the Federal Reserve Bank of Kansas City's 2026 Future of Banking Conference, Federal Reserve Board Vice Chair for Supervision Michelle Bowman set out a supervisory approach for community banks that emphasizes tailoring by size, complexity, risk, and business model. She argued that post-crisis frameworks designed for large institutions have too often been applied to smaller banks and said supervision should focus on material financial risks rather than procedural shortcomings that do not threaten safety and soundness. Bowman cited the current expected credit loss accounting framework and Regulation O as examples of disproportionate burden for community banks, particularly in rural markets. She said the Federal Reserve has published supervisory operating principles to anchor examinations on material financial risks and clarified that Matters Requiring Attention and Matters Requiring Immediate Attention should be used for deficiencies that could materially harm a bank's financial condition or have already done so, not for documentation gaps or departures from best practices alone. She added that cybersecurity and operational resilience remain core supervisory concerns, and noted that the federal banking agencies have finalized an update to the community bank leverage ratio to provide greater flexibility while maintaining capital standards.