(Reuters) - The framework used to assess competition in the banking sector needs to be overhauled to ensure there remains a level playing field that supports consumer choice, Federal Reserve Governor Michelle Bowman said on Wednesday.
"As... new competitors increasingly provide consumers with alternative delivery channels for the cluster of banking products and services they desire, we need to make sure we take appropriate steps to understand the competitive pressure they exert and modernize our approaches to measuring competition," Bowman said in prepared remarks to a community banking research conference in St. Louis, Missouri.
"The framework for analyzing bank mergers also needs to be updated. The goal should be a transparent, dynamic framework...size should not be the controlling factor...a review... should be based on a careful analysis of risks," she added.
While banks have moved quickly to address competitive threats and changing customer demand, the rules that govern how the U.S. central bank evaluates competition have remained relatively untouched for more than a quarter century.
Bowman pointed to several areas of improvement including more systematically including credit unions and nonbank financial firms in all competitive analyses.
To fully capture the impact of nonbank financial firms in some product markets, the deposit-market-based thresholds in current bank merger guidelines could be relaxed, Bowman said.
The Fed should also factor in deposits and loans offered by banks that have a national digital presence, with deposits weighed in pro rata in each banking market "at the percentage reported annually in the Summary of Deposits" in any competitive analysis, Bowman said.
The Fed should also review its approach to defining banking markets to ensure it is updated consistently and reflects the changes in how consumers in a community access banking products and services, Bowman noted.