Fed Governor Duke: Community Banks Key to Economic Growth
The recent financial crisis highlights the important role of community banks in providing credit to local businesses and households, said Federal Reserve Governor Elizabeth Duke in a recent speech.
Although financial markets have stabilized, banking conditions remain weak, and many businesses are still having trouble getting credit. Indeed, the amount of loans outstanding for banks fell during 2009, a decline likely caused by a number of complicated factors affecting supply and demand for loans, Duke said at the Western Independent Bankers Conference in late March.
Balance needed in bank lending, supervision
Of particular concern to community banks is the deterioration in commercial real estate (CRE) loans, which make up more than 30 percent of community bank assets, Duke said. The October 2009 CRE guidance from banking regulators "urges both lenders and examiners to take a balanced approach in assessing borrowers' debt-servicing capacity and to make realistic assessments of collateral valuations," she said. However, the most important factor in increasing the flow of credit to communities is a sustainable economic recovery, added Duke.
Bank supervision a window into financial system
Importantly, the Fed's supervisory responsibilities provide key insights for its other roles, such as monetary policy, where lending has been a central issue. In its efforts to stabilize financial markets, the Fed loaned nearly $2 trillion, which has now been paid down to less than $100 billion, Duke noted. "We never could have done that as quickly, as smoothly, or with zero loss without extensive knowledge of the industry and its institutions, as well as staff across the country with banking expertise."
April 26, 2010