for release on delivery 10 : 10 a. m. edt ( 9 : 10 a. m. cdt ) april 2, 2024 bank mergers and acquisitions, and de novo bank formation : implications for the future of the banking system remarks by michelle w. bowman member board of governors of the federal reserve system at a workshop on the future of banking, hosted by the federal reserve bank of kansas city kansas city, missouri april 2, 2024 good morning. before i provide some context for today ’ s discussions, i would like to thank all of our participants who are here with us today in kansas city at the reserve bank, and those participating remotely. most importantly, i ’ d like to thank our host, president schmid, and his excellent research staff, all of whom helped to organize today ’ s event. i especially appreciate the opportunity to highlight a few specific areas that concern me about the currently regulatory trajectory and their effects on the future of banking. 1 today ’ s workshop addresses timely and important questions, including the forces that will shape the future of the banking system, entry into the banking system, bank mergers and acquisitions, and the state of competition including both the direct and indirect competition banks experience and how regulators measure and assess competition — or at least how we broadly measure it today. the failures of silicon valley bank and signature bank just over a year ago, and the stress to the banking system that ensued, caused many institutions to retrench and prompted regulators to renew their focus on bank regulatory and supervisory policy and approach. banks responded by enhancing their focus on fundamental risks like interest rate and liquidity risk, adopting a more conservative posture in both risk management and lending. this self - reflection by both industry and regulators continues today. in fact, the long shadow of the bank failures continues to be a driving force for regulatory and supervisory reforms, even for reform proposals that have little relationship to the events surrounding the bank failures and ensuing banking system stress. the views expressed here are my own and not necessarily those of my colleagues on the federal open market committee or the board of governors. - 2as i have noted in the past, the regulatory reform agenda, and the less visible but no less important changes to the supervisory process, touch on a wide range of topics that directly and indirectly affect banks of all sizes. 2 the sheer volume of changes presents challenges to regulated institutions. outside of the largest banks, how does bank management review and provide meaningful comment on voluminous regulatory changes? when

goods price inflation, but it was likely secondary to the roles played by goods - specific demand and by the production and distribution network for goods over this period. in contrast, housing services inflation, the blue line in the chart, picked up appreciably in 2022 after having softened early in the pandemic. inflation in this sector is also driven by certain pandemic - specific factors. in particular, the surge in work from home led to an abrupt increase in the demand for bigger homes located in smaller metro areas or further from city centers. house prices and rents increased significantly. we have not seen a decline in housing services inflation yet, but recent data on new leases and lease renewals indicate that we soon will. lastly, we have inflation in other core services, the red line in - 7the graph, a large category that covers activities as varied as travel and recreation, and medical and legal services. inflation for these services, most of which are labor intensive, has remained stubbornly high. an important source of inflation pressures in this category has likely been the shortage of workers, which has pushed up labor costs at rates above those consistent with 2 percent inflation. the inflation outlook for this nonhousing category of core services will likely depend in large part on whether labor demand moves into better balance with labor supply and growth in nominal labor costs. recent data suggest that labor compensation has indeed started to decelerate somewhat over the past year but is still running too high to be consistent with returning inflation to 2 percent in a timely and sustainable fashion. the point is that the inflationary forces impinging on the u. s. economy at present represent a complex mixture of temporary and more long - lasting elements that defy simple, parsimonious explanation. the ongoing imbalance between the supply and demand for labor, combined with the large share of labor costs in the services sector, suggests that high inflation may come down only slowly. the paper notes the role of central bank credibility in managing disinflations, but i do not attribute the persistence in inflation to a lack of fed credibility. indeed, there is evidence in support of central bank credibility, including that long - term inflation expectations are not far from the fomc ’ s 2 percent target. let me conclude with a summary of my takeaways. history is useful, but it can only tell us so much, particularly in situations without historical precedent. the current situation is different from past episodes in at least four ways. first