Communication: The Key to Guiding Southeast Banks through Tumultuous Times

October 2010

Moderator: Welcome to the Federal Reserve Bank of Atlanta's Financial Update Focus podcast. The most recent issue of Financial Update saw the debut of "ViewPoint," a column authored by Michael Johnson, the Atlanta Fed's senior vice president in the Supervision and Regulation [S&R] division, and the bank's S&R staff. Mike is here to speak with us today about "ViewPoint" and some of the issues he feels are important to communicate to southeastern bankers.

Thanks for joining us today, Mike.

Michael Johnson: Thanks, Tom. Looking forward to it.

Moderator: Mike, you've undertaken "ViewPoint" as a vehicle for discussing trends in banking and bank supervision and regulation. The concerns of very large, internationally active banking organizations can differ from those of smaller community banks. But what supervisory concerns and interests do they have in common?

Johnson: Yeah, that's a great question, Tom. I actually think they have more in common than they do differences. First and foremost, one of the recurring themes that you'll see in "ViewPoint" that we are trying to address is that all banks in the District operate in the same economic and banking environment. So, it's really important for us to communicate our views as to that climate.

And, second, while the regulatory landscape itself is challenging, all banks are also operating in that same landscape. Some of the rules may vary, but the direction is consistent for all banks. An easy example of that is Basel 3. While that may apply only to the large internationally active banks that you mentioned, the capital components of that, the direction of capital regulation will be a common theme for all banks to address. For example, the significance of core, common capital, the trend of more capital requirements, and greater capital expectations is something that applies universally through all banks.

Moderator: That's a great point, and something that all southeastern banks will be thinking about a lot. Mike, your Financial Update column allows you to connect directly to bankers. When you're talking to bankers, what information do you find they are most interested in learning more about?

Johnson: Interestingly, I think most bankers take both a macro and a micro perspective, so they are very interested in our views of the overall economy. As the Federal Reserve, we obviously have those views, and they are very interested in the macro environment, the new Dodd-Frank rules, how that's going to work out. But, they also are extremely interested in the proverbial "what does it mean for me on a day-to-day basis." So, some examples of that are CRE— commercial real estate, referred to as CRE—loan workout guidance. How are those rules applied? When, for example, are new appraisals expected from regulators?

So, the interests are very broad in scope, but then also very tangible to our bankers, and that is what we are trying to address in "ViewPoint" as well.

Moderator: Right. I could see that's a point of emphasis in "ViewPoint." Mike, the banking environment in the Southeast has been, you could say, tumultuous, and you arrived at the Atlanta Fed during an eventful time. Obviously, communication is a key to helping bankers understand changes in supervision and regulation, but what key points do you hope to communicate to them in the short term?

Johnson: Well, I think fundamentally, Tom, the most important—you actually said it very well—the most important point is communication. Communication between the banking industry and us as bank supervisors is extremely important, particularly during these tumultuous times. We need to maintain an open, ongoing, and honest dialogue—obviously, during supervisory events, like examinations of our banks, but also in between those events, when there's a new, important development, whether it's at a particular bank—and we need to have that dialogue about what that development is and what it might mean for the bank—but then also in the broader context of events as they unfold: changes in the economy, new rules and regulations, things of that nature. So, it's really the most important, fundamental point that I think I can get across is the criticality of open, honest, and ongoing communications between us and the banks that we supervise.

Moderator: That's a great point. Mike, my last question to you: in the data that accompany "ViewPoint," you present quite a multi-faceted snapshot of banking in the region. Do any of the data stand out to you in particular, in terms of either improvement or deterioration of conditions?

Johnson: Yeah, Tom, we're always looking for improvement in this environment, aren't we? And that's going to be an ongoing feature of "ViewPoint," a discussion of banking conditions every quarter. And, unfortunately for the second quarter, there wasn't a lot of good news, but where I will point to some potential good news is in the retail, or consumer credit section. There's some improvement in that area, and I'm going to highlight the word "improvement" a little bit. Basically, it's not getting worse so, in this environment to some extent, that is improvement. And we're keeping a real close eye on the retail segment because we do see it getting better over the next coming quarters.

In addition to that, the commercial real estate area is still a problem story, but it's more of a nuanced story, [as] there are a number of components to commercial real estate. And, for example, multi-housing is actually an improving story within commercial real estate. Unfortunately, a number of the other sectors within that, particularly [that of] income-producing properties and acquisition land development lots, is still a real problem and is going to be a drag for the banking sector, I think, probably for the foreseeable future.

Moderator: Mike, I know we'll have a lot to talk about in the future, and I look forward to having those conversations with you, but for right now, I really appreciate your time and for sharing your thoughts with us about "ViewPoint" and bank supervision and regulation in general.

Johnson: Thanks, Tom. Looking forward to it.

Moderator: Again, today we've been speaking with Mike Johnson, senior vice president in the Atlanta Fed banking Supervision and Regulation division. This concludes our Financial Update Focus podcast on "ViewPoint" and bank supervision and regulation in the Southeast. To read the debut of "ViewPoint," please see the third quarter 2010 issue of Financial Update and click "ViewPoint."

For more information, please see Financial Update on the Atlanta Fed website.Thanks for listening, and please return for more podcasts. If you have comments, please send us e-mail at