Community Banks Face New Postcrisis Challenges, Says Fed Governor Tarullo
Problems with commercial real estate loans and other short-term challenges will unfortunately overwhelm a number of community banks, said Federal Reserve Governor Daniel K. Tarullo in a recent speech. However, "the vast majority will survive the present downturn," he added.
Banks must adapt to new environment
All banks must grapple with the tradeoff between risk and reward, noted Tarullo, and their decisions will ultimately affect their safety and soundness. Thus, he emphasized the need for banks to be aware of how changes in their business activities, such as a new business line or lending product, can affect risk levels.
Fed not yet at the exit
He urged caution as the Fed exits from its extraordinary lending and monetary policies, noting that "the relatively modest pace of recovery, the continued high rate of unemployment, subdued inflation trends, and well-anchored inflation expectations together suggest that the need for highly accommodative monetary policies will not diminish soon."
April 26, 2010