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Banking

Fed Chair Bernanke: Fed Attuned to Community Banks' Concerns

photo of Fed Chair BernankeThe Federal Reserve System is continually enhancing its efforts to understand community banks because of their importance to the economy and to local communities, Fed Chairman Ben Bernanke said in a February 16 speech at the Future of Community Banking Conference in Arlington, Virginia.

In his remarks, Bernanke outlined various ways the Fed communicates with smaller financial institutions. "For the Federal Reserve in particular," Bernanke said, "community banks not only provide insights into their industry, but they are also an unmatched source of crucial grassroots information about developments in the economy as a whole, which is necessary for effective monetary policy."

Multiple channels of communication open
The Fed pursues a dialogue with community bankers through many channels. For example, each of the 12 regional Reserve Banks has a new Community Depository Institutions Advisory Council. Members come from banks, credit unions, and savings associations. The groups' meetings allow the Fed to hear directly from community bankers about regulatory issues and economic trends.

In addition to the advisory councils, the Federal Reserve Board in 2011 established a special supervision subcommittee to address community banking issues. Its mission is to deepen the Fed's understanding of community and regional banking conditions and to review policy proposals for their potential impact on community and regional institutions.

Regulatory changes bring concerns
Through various channels, the Fed often hears that community bankers are concerned about the changing regulatory landscape. One specific worry is the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Bernanke noted Congress enacted the Dodd-Frank Act largely in response to the "too big to fail" issue and that most of its provisions apply only, or mainly, to large and internationally active banks. Bernanke said the Fed recognizes that new regulations and requirements may impose disproportionate costs on smaller banks, which have fewer staff members and less sophisticated information systems than larger institutions.

As for the current operating climate for community banks, the chairman said that despite economic uncertainties, conditions are generally improving.

February 23, 2012