Federal Reserve Proposes Banking Rule Changes to Boost Lending and Address Growing Non-Bank Risks
Washington, Thursday, 3 September 2026.
Federal Reserve Vice Chair Michelle Bowman outlined regulatory reforms as traditional bank mortgage market share dropped from 60% to 35%, driven by rising, less-regulated non-bank lenders.
Federal Reserve Outlines Regulatory Priorities Before House Committee
Federal Reserve Vice Chair for Supervision Michelle Bowman delivered testimony before the House Financial Services Committee on Thursday, 3 September 2026, detailing the central bank’s supervisory and regulatory framework adjustments [1]. The testimony addressed potential modifications to bank capital requirements and the efficiency of regulatory oversight, which policymakers indicate could significantly alter compliance burdens across the U.S. financial sector [1]. Executives are closely monitoring these proposed shifts as they seek to balance financial stability with economic growth [1].
Shifts in Mortgage Lending Landscapes
A significant trend highlighted during the proceedings is the shifting market share in mortgage origination and servicing, where non-bank financial institutions (NBFIs) are capturing an increasing portion of the lending market [1]. Data indicates that bank-originated mortgages declined from approximately 60 percent in 2008 to roughly 35 percent in 2023, representing a substantial contraction in traditional bank participation [1]. This shift calculates to a decline of -41.667 percent in market share over the observed period, driven by NBFIs often operating without the same regulatory standards as traditional banks [1].
Capital Requirements and Community Bank Frameworks
Federal banking regulators finalized reforms to the Community Bank Leverage Ratio (CBLR) framework on April 23, 2026, setting the ratio at 8 percent to better calibrate oversight for community banks [1]. Additionally, in March 2026, agencies proposed modernizing the U.S. regulatory capital framework to align requirements with actual risks and reduce duplications [1]. These initiatives aim to encourage responsible mortgage lending while ensuring that regulatory requirements do not discourage well-qualified local leaders from community bank boards [1].
Emerging Risks in Technology and Cybersecurity
The Federal Reserve is actively monitoring the dual impact of artificial intelligence (AI) on cybersecurity, noting that while AI enhances defense capabilities, it also accelerates the identification of vulnerabilities by potential attackers [1]. Vice Chair Bowman emphasized that managing these emerging cyber risks will require ongoing collaboration between public and private entities and agile regulatory frameworks [1]. Looking ahead, the Financial Stability Board’s Standing Committee on Supervisory and Regulatory Cooperation is scheduled to publish a report on sound AI practices for financial institutions next week [1].
Broader Economic and Administrative Context
These regulatory reviews align with broader administrative calls for reduced regulation to assist small banks, as noted by recent reports involving Treasury Secretary Bessent [2]. The Federal Reserve plans to release a report regarding international supervisory and regulatory modernization efforts for public comment later this year, aiming to ensure a path to responsible innovation [1]. Ultimately, the proposed initiatives reflect a principle that appropriately calibrating regulatory requirements strengthens both financial stability and economic growth [1].