Banking

Much of what Federal Reserve Governor Elizabeth Duke learned during her career as a community banker has helped her in her role as a member of the Federal Reserve Board of Governors, she told students in a February 2 speech at the University of North Carolina.

Community banking experience adds value to new role
Duke spent the first part of her career at a small community bank, and as a result, she tried her hand at virtually all of the bank's operations. Since then, she has drawn on her community banking knowledge and experience, especially during the financial crisis that erupted shortly after she joined the Board of Governors in August 2008.

For instance, her experience with making reserve decisions for her small community bank "makes it much easier to connect the dots between Federal Reserve actions to add or withdraw reserves, bankers' decisions to manage their reserve accounts, and the resulting impact on interest rates, which in turn influence economic activity," she said.

Duke outlined several additional activities from her decades as a community banker that today add perspective to her policy advice at the Fed, including:

• Creating and using bank simulations, which build an understanding of "how banks and bankers react to various external conditions."
• Lending to small businesses and dealing with problem loans, which today influence her policy views and remind her of the important role of small business in the U.S. economy, as well as the importance of credit to small business.

Fed actions helped support households, businesses
Duke also discussed many of the Fed's actions to support the economy, including lowering short-term interest rates, lending to financial institutions, and purchasing assets to push down longer-term interest rates. These actions helped keep loans flowing to creditworthy borrowers, she explained. Lower long-term rates reduce the cost and increase the availability of capital and credit, in turn spurring business expansion and lowering the cost to service existing debt.

These actions helped households and businesses. Indeed, Duke has gotten feedback from many small-business owners, a number of whom said "that they could not have survived without lower rates." In November, 2010, the Fed took further steps to support the economy when it announced that it would purchase $600 billion in longer-term Treasury securities by the end of June 2011.

February 25, 2011