Financial Update (Second Quarter 2009)
Fed Gov. Tarullo: Small Banks Must Focus on Loan Quality
Community banks probably will not see the significant supervisory changes that have been proposed for the nation's biggest financial institutions, but small banks must also adjust risk management in response to changing competitive and economic conditions, Federal Reserve Gov. Daniel Tarullo said during a recent speech.
At the North Carolina Bankers Association Annual Convention in Chapel Hill, N.C., Tarullo discussed the effects of the financial crisis, recession, and regulatory changes on large and small institutions. He also summarized his ideas for reworking the nation's financial regulatory structure.
Changes in banking industry reverberate
That consolidation has cut into smaller banks' market position. For one, the proportion of banking offices operated by community banks has declined more than 25 percent, and smaller banks' shares of deposits, assets, and small business loans have also declined substantially, Tarullo said.
"Even so, many community banks have thrived, in large part because their local presence and personal interactions give them an advantage in meeting the financial needs of many households, small businesses, and agricultural firms," Tarullo said.
Community banks meet the challenge
"In this difficult operating environment, Federal Reserve examiners are encouraging community banks to focus on maintaining sound loan quality and strong credit administration practices," Tarullo said. "In addition, they are working with community banks to ensure that they maintain appropriate capital planning, credit administration, and liquidity management policies."
June 30, 2009