Bessent, Bowman and Barr: Community Banks Need Regulatory Clarity

Community banks remain vital to the U.S. economy but face mounting pressures to modernize amid competition from larger banks and FinTechs. At the Federal Reserve’s 2025 Community Bank Conference, Treasury Secretary Scott Bessent, Federal Reserve Vice Chair for Supervision Michelle W. Bowman, and Governor Michael S. Barr, each described how technology, transparency, and tailored regulation can help these banks compete and thrive.

“Our support for community banks cannot just be lip service; it must translate into specific actions that right-size regulation and apply appropriate supervisory standards,” Bowman said in her remarks Thursday (Oct. 9). She cautioned that fixed asset thresholds “fail to account for economic growth and inflation over time,” which causes stable banks “to become subject to increasingly complex and burdensome regulatory requirements.”

She called for an overhaul of the application process: “The remedy is simple: Regulatory application review should be effective, timely and efficient. Banks should have a clear understanding of the information they must provide. … And regulators should be prepared to act on a complete application within the statutory time frames.”

Bessent described on Thursday how years of layered regulation had “gradually suffocated the banks that are closest to the men and women who work the jobs, pay the bills, and take out the loans that fuel growth in small-town America.” Since 2010, he noted, “we’ve lost 3,600 community banks, a reduction of over 45%,” while their share of total bank assets fell from 23% to 15%.

Barr, in his Wednesday (Oct 8) comments, said technology “is a big part of what will determine the future of community banking.” He pointed to the 2025 Conference of State Bank Supervisors survey, which found that “AI [artificial intelligence] for customer support was an important focus for 31% of respondents, a share that jumped to 47% in this year’s survey.”

While AI holds promise for operational efficiency, Barr cautioned, “The use of deepfakes in cybercrime is growing very quickly,” adding, “There has been a twentyfold increase in deepfake attacks over the last three years.” He said community banks must remain vigilant as generative AI reshapes risk exposure and customer engagement.

Barr noted that banks “often turn to third-party service providers to help them offer products and services to compete with larger banks and FinTechs,” but said the key is to “adopt technologies or form partnerships that allow them to deepen customer relationships but not attenuate or replace them.”

Bowman linked modernization to regulatory clarity, saying, “We cannot accept the opacity of the status quo, especially when the ‘fix’ is as simple as clear standards, clear forms, and prompt attention to and action on applications.”

Building on new regulatory initiatives, reported this week by PYMNTS, Bessent said the FDIC and OCC “proposed a rule that would define ‘unsafe or unsound practice or condition.’ While simply defining a term might seem like a small thing, it marks a big step forward.” He also highlighted the Financial Crimes Enforcement Network’s reforms aimed at easing compliance without reducing oversight: “These are commonsense yet consequential reforms that will ease regulatory burdens without undermining law enforcement efforts.”

Treasury, he added, “will continue to drive reforms to improve regulatory tailoring, refocus the culture of supervision, and modernize our illicit finance regulation.” His message to community bankers was direct: “Go on offense. Retake market share. Champion technology. Leverage the new regulatory landscape to your advantage.”

Across their remarks, Bessent, Bowman, and Barr emphasized the same premise: Modern oversight and innovation can reinforce one another. Bessent closed with a call to action: “The community bank comeback will help pave the way for America’s Golden Age.”

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