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UNITED STATES OF AMERICA

FEDERAL DEPOSIT INSURANCE CORPORATION

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ADVISORY COMMITTEE OF STATE REGULATORS

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THURSDAY

MARCH 18, 2021

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The Advisory Committee met via videoteleconference, at 1:00 p.m. EDT, Jelena McWilliams, 

Chairman, presiding.

ADVISORY COMMITTEE MEMBERS PRESENT

THOMAS FITE, Director, Department of Financial 

 Institutions, State of Indiana

MARY GALLAGHER, Commissioner of Banks,

Commonwealth of Massachusetts

BRET AFDAHL, Director, Division of Banking, 

 State of South Dakota

G. EDWARD LEARY, Commissioner, Department of 

 Financial Institutions, State of Utah

DAWN HOLSTEIN, Commissioner of Banking,

 Division of Financial Institutions, State of 

 West Virginia

CHARLES COOPER, Commissioner, Department of 

 Banking, State of Texas

ANTONIO SALAZAR, Commissioner of Financial 

 Regulation, State of Maryland

MELANIE HALL, Commissioner, Division of Banking 

 & Financial Institutions, State of Montana

JOHN RYAN, President and CEO, Conference of 

 State Bank Supervisors

KEVIN HAGLER, Commissioner, Department of 

 Banking and Finance, State of Georgia

RAY GRACE, Commissioner of Banks, State of North 

 Carolina

I. LISE KRUSE, Commissioner, Department of 

 Financial Institutions, State of North Dakota

GREG GONZALEZ, Commissioner, Department of 
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 Financial Institutions, State of Tennessee

KEVIN ALLARD, Superintendent, Division of 

 Financial Institutions, State of Ohio

MICK THOMPSON, Commissioner, Banking Department, 

 State of Oklahoma

FDIC BOARD MEMBERS & STAFF PRESENT

JELENA McWILLIAMS, Chairman

MARTIN J. GRUENBERG, Director

ARLEAS UPTON KEA, Deputy to the Chairman for 

 External Affairs

SULTAN MEGHJI, Chief Innovation Officer

JOHN ANDERLIK, Assistant Director, National & 

 Regional Risk Analysis, Division of Insurance 

 and Research

DOREEN EBERLEY, Director, Division of Risk 

 Management Supervision

MARTIN HENNING, Deputy Director, Operational 

 Risk, Division of Risk Management Supervision

RAE-ANN MILLER, Senior Deputy Director, 

 Supervisory Examinations, Division of Risk 

 Management Supervision

SHAYNA OLESIUK, Associate Director, National & 

 Regional Risk Analysis, Division of Insurance 

 and Research

MARK PEARCE, Director, Division of Depositor and 

 Consumer Protection

NICK PODSIADLY, General Counsel

CAMILLE SCHMIDT, Chief, Emerging Issues Section,

 Division of Risk Management Supervision

JOHN VOGEL, Deputy Director, Operations,

 Division of Risk Management Supervision
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C-O-N-T-E-N-T-S

Introductory Remarks by Chairman McWilliams 5

Discussion of State Banking Conditions

 Thomas Fite, State of Indiana 9

 Mary Gallagher, Commonwealth of

 Massachusetts 16

Bret Afdahl, State of South Dakota 22

G. Edward Leary, State of Utah 30

Dawn Holstein, State of West Virginia 31

Charles Cooper, State of Texas 34

Antonio Salazar, State of Maryland 37

Melanie Hall, State of Montana 44

Lise Kruse, State of North Dakota 48

Greg Gonzales, State of Tennessee 52

Kevin Allard, State of Ohio 56

Mick Thompson, State of Oklahoma 59

Ray Grace, State of North Carolina 61

Kevin Hagler, State of Georgia 68

Shayna Olesiuk, Associate Director,

National & Regional Risk Analysis,

Division of Insurance and Research 75

Camille Schmidt, Chief, Emerging Issues

Section, Division of Risk Management

Supervision 87

FDiTech Update by Sultan Meghji, FDIC

Chief Innovation Officer 83

Research Update: FDIC Community Banking

Study and Agricultural Lending

by John Anderlik, Assistant Director,

National & Regional Risk Analysis,

Division of Insurance and Research 99

State-Federal Coordination

Doreen Eberley, Director, Division of

Risk Management Supervision 119

John Vogel, Deputy Director,

Operations, Division of Risk

Management Supervision 121
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Rae-Ann Miller, Senior Deputy Director,

Supervision and Policy, Division of

Risk Management Supervision 123

Martin Henning, Deputy Director, 

Operational Risk, Division of Risk

Management Supervision 126

Mark Pearce, Director, Division of

Depositor and Consumer Protection 138

Closing Remarks by Chairman McWilliams 145
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P-R-O-C-E-E-D-I-N-G-S

1:06 p.m.

CHAIRMAN McWILLIAMS: Good afternoon, or good 

morning for those of you on the West Coast. Welcome to our 

second meeting of the FDIC Advisory Committee of State 

Regulators. It's a pleasure to have you here today; and I 

would like to personally thank you for making the time to 

join us.

A lot has happened since we last met in October. 

I frankly don't even know where to begin to cover 

everything that has been going on at the FDIC and the 

broader financial services industry, as well as our 

economy. I would just say that we continue to focus on 

core safety and soundness principles, capital, liquidity, 

asset quality, as you are at the state level as well.

You know much about our COVID response. The 

bank regulatory agencies issued many rulemakings to ensure 

that banks had the flexibility to support the economy 

through the truly unprecedented events of the last year. 

While we're optimistic about the economic outlook, we will 

continue to monitor conditions in individual regions and 

appropriately respond to those vis-a-vis our regulations 

and regulatory approaches. And, I cannot stress enough 
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what a valuable perspective and team players you are to us, 

frankly teammates in understanding what's going on the 

ground with your banks and your communities.

One of our primary focuses is to promote 

innovation; and to create a regulatory environment that 

will make it easier for small banks to adopt new 

technology, to become more efficient, and to make their 

products and services available to a broader array of 

customers. We just hired our new and first Chief 

Innovation Officer to lead our FDiTech, our innovation lab. 

His name is Sultan Meghji, and he is going to be giving us 

a brief overview today.

I'm really excited about him joining us. He 

comes to us with vast experience. We were looking for 

somebody who would be willing to challenge the status quo

and break down the barriers. And we found that person in 

Sultan.

We do have a couple of initiatives underway for 

our innovation efforts. We have the rapid prototyping to 

replace Call Reports. And, you have been briefed about that 

in the past. But, we will touch base upon that again today 

as well as our proposal to create a standard-setting body 

to establish standards for due diligence of vendors and for 
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the technologies they develop.

I would say that we have implemented a number of 

policy changes from the regulatory side to remove barriers 

to innovation, such as the broker deposits rule that we 

finalized last December. And, we will continue to focus

throughout the year on financial inclusion, and American 

competitiveness and dynamism, because we do believe that 

there's an opportunity for us to expand financial services 

to a broader array of customers, to bring Main Street 

America into the banking channels of the 21st century, as 

well as to ensure that our financial sector is the foremost 

competitive and efficient financial sector in the world.

And with that, I don't want to take away from 

the true experts in their field. I will turn it back to 

you, Arleas. And I would just like to say thank you again 

for making the time, for joining us, and for being willing 

to share your incredibly valuable perspectives with us 

today. Thank you.

MS. KEA: Thank you so much, Chairman 

McWilliams. Before we begin with our agenda, I would like 

to turn to Board Member, Director Gruenberg and ask do you 

have any remarks that you'd like to share with us before we 

start with the agenda items?
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DIRECTOR GRUENBERG: Thank you, Arleas. I'll be 

very brief. One, let me just thank all the Commissioners 

for taking the time today to meet with us. I very much 

look forward to the discussion with you and particularly 

hearing what you all are seeing in your states and 

localities. I think that'll be of great interest and value 

to us.

This has been an extraordinary period that we've 

been working through over the past year. I think there are 

still communities across the country experiencing and 

dealing with severe hardship. But there is reason to 

believe that things are going to turn for the better.

I think there's still significant uncertainty in 

front of us and clearly areas of vulnerability that I think 

we're going to need to focus on. I think, particularly,

perhaps in the area of commercial real estate. So I very 

much look forward to your comments today and our 

opportunity to engage with you and really appreciate you 

all taking the time. Arleas, thanks a lot.

MS. KEA: Thank you, Director Gruenberg. And 

let me also add my thanks to all of you. And I'm pleased 

to serve as your facilitator for today's meeting, and I 

look forward to working with all of you.
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We're going to start the afternoon by turning to 

the Committee Members for your updates about trends and 

issues related to the banking environment and the 

conditions in all of your states. And then after we hear 

from all of you, we'll also hear from our FDIC staff 

members who will share their observations. Shayna Olesiuk, 

Associate Director National & Regional Risk Analysis, from 

our Division of Insurance and Research is going to cover 

some observations about the national economy and banking 

trends.

And then we also have Camille Schmidt, who is 

our Chief of the Emerging Issues Section in the Division of 

Risk Management. Camille is going to discuss trends in the 

risk management practices. So, I'd like to start off our 

Committee Member discussion at this point with Tom Fite, 

the Director of the State of Illinois Department of 

Financial Institutions. Then, Director Fite will be 

followed by the other committee members. So at this point, 

Director Fite, I'd like to turn it over to you.

MEMBER FITE: Yeah, thank you, Arleas. 

Appreciate the invite. I'm happy to pronounce that, I 

think we have, if I counted right, 14 states represented 

here on this call today. So you're going to get a really, 
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I think, well rounded cross-country view of what's going on 

in each of our states.

I'm happy to report in Indiana actually I think 

I have a lot of optimism. I think there's a lot of good 

things happening in Indiana. But, we do certainly 

recognize there's still some uncertain times, much to the 

point of Mr. Gruenberg, right before I started talking 

here.

Last time, I think a lot of those states 

provided thoughts about some geographic, maybe, pieces that 

would be a little bit difficult in our states. And, we

talked a lot about, maybe, population hubs and definitely 

the larger cities being a place, maybe, where we're seeing 

the most impact right now, as you would expect obviously in 

a pandemic-driven financial crisis. That remains here in 

Indiana as well, but we see most, I think, of our impact in 

Indianapolis, South Bend, Fort Wayne, down around 

Louisville, where the population bases mostly reside.

I would say too, I think the vaccination rollout 

in Indiana is going great. So, we're now down to 45-yearolds, a cutoff, by the way, that I made by six days. So 

happy about seeing that going well in Indiana.

I'm starting to see, I think, some impact of 
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that in Indiana; and people seem more confident about going 

out, returning to work, returning back downtown. I'll say,

I think, sometimes we can overcomplicate things a little 

bit and look at numbers and stats. And, numbers and stats 

are what they are, but sometimes the visual component, I 

think, means more.

Over my left shoulder here, maybe right on your 

screen, is a six-story parking garage. I've been watching 

this parking garage as this crisis has unfolded. Early in 

the crisis, there was maybe a few cars on the first floor. 

And, as of today looking across the street, we actually 

have cars on the third floor.

I think that's probably a pretty good visual for 

what's happening here as people have been going out, 

getting vaccinated, becoming more comfortable going back in 

public. We're returning back to our offices downtown, 

albeit no place close to what it was obviously before 

crisis. I'll give you an example of that.

And, Mr. Gruenberg, we're also watching CRE 

pretty closely in our area. But, a really good example, I 

think, is the company Salesforce of which most of you, I'm 

sure, are familiar. Salesforce actually is the name of the 

top of the biggest building in Indianapolis.
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In fact, they occupy, I believe, 36 stories of 

that building, at least pre-pandemic. And, they announced 

back in February actually they're going to go fully remote. 

So just think about that, 36 stories of a 61-story building 

in downtown Indianapolis, for all intents and purposes, may 

be mostly vacant.

What that does obviously to the lunch crowd 

downtown; and all the money that comes in with people that 

work downtown will be something we monitor very closely.

But, probably a trend we're going to see, I think, with a 

lot of businesses, right, that do or do not return back to 

their offices and what that means for the economy and 

larger cities like Indianapolis. We’ve certainly been 

watching them pretty closely for a long time.

The fun thing for us right now, as you all know, 

it starts today. Indianapolis is hosting the NCAA 

tournament. This is going to be great for us, obviously 

great timing with the beginning of the warm weather season 

here with our hotels and restaurants being much more 

visited.

In fact, I've heard some people are having to go 

as far as an hour away to get a hotel right now. So, we're

really looking forward to seeing the kind of money that 
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brings into our economy. I think it's going to be great 

for Indianapolis; and it should get us really good boost, I 

think, as we get in now to the summer months which, as we 

saw last year, was a time when people felt more comfortable 

either going to outdoor seating or even maybe doing some 

travel locally with things like little league sports and 

those things we travel for during the summertime.

A quick update here too, I'll say housing is 

interesting in Indiana right now. We definitely have a 

housing shortage. The governor actually recently added 

this to the five pillars that he's focused on for 2021.

We formed a housing study committee to kind of 

look into what the housing shortage looks like and what 

maybe the long-term impact of that is. I'll tell you here 

too anecdotally, just visually, every field that I drive by

on my way to work has a new house being built in it. So,

there's a lot of activity there, I think, around the 

housing shortage; and what it's doing to housing prices and 

also trying to figure out if that maybe is a blip or a 

bubble, or if that's maybe a permanent change because you 

do see in Indiana I think a lot of people originally from 

Indiana that move to larger cities now moving back to 

Indiana post-pandemic; and maybe coming back to more 
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smaller town life like we have here in Indiana and the 

Midwest.

Another trend I've heard, and this one I think 

is interesting, is Indiana has a pretty stable housing 

price value. So, we don't typically make a lot of money on 

our homes, but we also don't typically have a lot of risk. 

That's changed a little bit right now with supply and 

demand.

So, I've actually heard stories of a lot of 

people that are right now selling their homes and moving 

into a rental house to take advantage of pulling that large 

gain out of their current value, which I think is good and 

favorable for home values in Indiana. But, the other piece 

of that, though, is I'm hearing a lot of people are 

speculating that there's going to be a foreclosure boom 

here at some point in time. And, that they will then take 

advantage on both sides of selling the house they're living 

in now at a high value, and then, post-foreclosure, try to 

pick up something maybe at a cheaper price later. So 

obviously, for the sake of my area, I hope they're 

definitely wrong on the second half of that bet.

Finally on bank performance, I'll say bank 

performance in Indiana has been very strong. We had many 
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banks in Indiana have record earnings in 2020. Overall, 

some of that, you know, is probably somewhat artificial or 

inflated or maybe one-time based upon asset sizes being 

hugely ballooned at the end of the year.

By our estimates, it looks like assets are 

probably about 14 percent year-over-year, from year-end to 

year-end, 2020 from '19. So, we're looking to see kind of 

where that settles back in. I do think there is some real 

growth there. But, some of that, I think, will just kind 

of throw us back out as the PPP loans pay off; and then 

also as some of the temporary deposits maybe roll 

themselves back out of the banks that we regulate.

One maybe word of warning or things maybe for us 

to look at would M&A, merger and acquisition, activities. 

I’m hearing still a ton of discussion around that. We're 

not seeing a spike there yet. But, I'm being told one is 

coming. The low rate environment that we're living in 

obviously is forcing banks to become larger.

And dependent upon how much of that growth may 

be artificial and roll back out, I think banks are going to

need to grow to remain profitable at the current rate 

environment. So, I'm being told that should spur a lot of 

merger activities, probably in Indiana. And some of that 
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might be pent up interest from activity that would've 

happened if not for the pandemic.

So, I would applaud you also on your innovation 

effort. I think it's great. I think you have a great 

person there in that office. Definitely, in the state 

perspective, we see a lot of change in the portfolios that 

we regulate, a lot of different activities from the 

businesses that we regulate.

And a, we have strong desire, I think, to 

innovate ourselves as well; and try to keep up with what 

we do with innovation and within those that we regulate. 

So I just wanted to take a chance to kind of applaud you 

on that too and say thank you for your efforts on that 

front. That's my update for Indiana, and now I'll pass it 

on to my friend, Mary Gallagher, from the Commonwealth of 

Massachusetts.

MEMBER GALLAGHER: Thanks, Tom. And, thank you 

to the FDIC and Chairman McWilliams for the opportunity to 

represent the Commonwealth of Massachusetts; and the state 

regulatory system as a participant on this advisory 

committee. I'll provide a brief update on the local 

conditions here in Massachusetts in the month since we 

last convened.
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Similar to Tom, there's a sense of optimism 

here as the vaccine rollout accelerates. Massachusetts is 

likely to reach one million fully vaccinated residents 

today, which puts us close to the 25 percent -- close to 

25 percent of targeted herd immunity goals. Yesterday, 

Governor Baker announced vaccine eligibility expansion in 

the coming weeks to first include those aged 60-plus, then 

55-plus, and ultimately, the general population will be 

able to book vaccine appointments starting April 19th, so 

just a month out.

Containing the virus has been the primary local 

focus here. And, the prospect of reaching herd immunity 

through vaccination by the end of the second quarter is 

extremely encouraging. The vaccine optimism coupled with 

relief from federal stimulus packages present a hope that 

economic damage resulting from the pandemic may be 

contained.

Mind you, any optimism must be tempered, 

particularly given concerns surrounding housing and 

unemployment. The December federal package of the 

Consolidated Appropriations Act and last week's American 

Rescue Plan will provide Massachusetts with 800 million 

dollars towards rental assistance. These federal funds 

administered locally should go a long way towards staving 
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off a feared housing crisis -- housing and eviction crisis, 

impacts of which we as banking and lending regulators are 

closely monitoring.

In addition, we are keeping an eye on 

unemployment data. Although improved from last summer's 

highs when Massachusetts had the undistinguished highest 

levels of unemployment in the immediate aftermath of the 

pandemic, the figures have come down. But the stark 

reality is that there's permanent job loss of a quarter of 

a million workers here in Massachusetts.

Furthermore, the Department of Labor's data 

indicates concerning disparities for females and 

minorities. We continue to monitor these trends, as do our 

banks, and remain concerned about the long-term effects on 

the economy and the banks themselves. It is simply 

premature to assess how long or how deep the effects of the 

pandemic will be, nor how effective the stimulus relief 

will be on the economic recovery.

That said, as part of the diverse life of the 

financial system, I continue to have confidence in our 

banks' ability to manage -- to make sound risk management 

decisions, which serve Massachusetts well. We currently 

charter 97 banks, two limited purpose trust companies, plus 
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58 credit unions, two excess insurers, and nearly 12,000 

non-depository licensees. From the standpoint of risk 

management supervision, I commend our banks for their 

demonstrated strength and ability to serve their customers, 

individuals and small businesses alike, throughout the 

pandemic.

Massachusetts banks were exceptionally strong 

heading into the pandemic; and thus far they are 

maintaining strength and resilience. Examinations to date 

and Call Report data suggests in aggregate that the 

pandemic has thus far been relatively benign for our 

banks. As a group, the average leveraged capital ratio 

over the PCA well-capitalized thresholds suggests a robust 

capital cushion.

Asset quality is holding up well, but obviously 

bears watching over the coming months. Earnings are 

starting to recover to pre-pandemic levels. Mid-year 

forbearance and moratorium-related activity appears to be 

abating. We know that our banks continue to vigilantly 

monitor their portfolios for potential loss. 

Understandably, certain sectors are more concerning than 

others given the pandemic's local impact; namely, 

hospitality, restaurants, arts and entertainment, travel 
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and tourism, and to echo Director Gruenberg, commercial 

real estate vulnerabilities.

Liquidity has arguably never been higher with 

the flight to safety as cash holdings and interest-bearing

instruments have driven total deposit growth. As for 

market risk sensitivity, Massachusetts banks were well 

positioned for the March 2020 rate decline, in part thanks 

to their advanced diligence. That said, net interest 

margins have declined and we will keep an eye out for a 

prolonged decline, particularly as the Federal Reserve 

continues to signal an extended low rate environment.

Overall, Massachusetts banks have been proactive 

in monitoring, identifying, managing, and effectively 

mitigating their risk profiles, thereby supporting the 

health and strength of the Massachusetts banking sector. 

While financial metrics appear to be improving and the 

industry is navigating the pandemic so far relatively 

unscathed, a reflection of its solid management, one of the 

biggest risk that has me worried is cyber. Continued 

information sharing on cyber and IT matters between federal 

and state regulators is essential.

Our IT and cyber exam team is constantly 

monitoring cyber risks, and the focus right now is on 

ransomware given it can strike suddenly and devastate 
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quickly. Our top IT priority in 2021 is working with banks 

and their boards on ransomware preparedness. I'm proud of 

our team and the state system for playing a pivotal role in 

the development of the ransomware self-assessment tool,

which was rolled out in mid-October.

As for the realm of consumer protection, our 

COVID-19 risk assessment and examination approach for 

compliance and CRA, aims to ensure that banks are complying 

with the CARES Act and Massachusetts specific Chapter 65 

COVID relief measures; and that our institutions are 

monitoring for fair lending compliance. Our examination 

team intends to help identify potential risk areas, 

highlight best practices for monitoring compliance, ensure 

documentation of policies and procedures, and tracking 

delinquencies and collection efforts to ensure that 

anything caused by COVID is not reported to the credit 

reporting agencies.

Our examinations and public evaluations 

conducted thus far reflect that most of our institutions 

are indeed offering COVID relief, either through 

forbearance, flexible products and services, millions of 

dollars in donations to community COVID relief efforts, 

and significant PPP lending. Our banks' ongoing CRA 
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efforts stand to serve as a critical bridge to help our 

communities through and post-COVID. Our exam posture 

remains remote, and we have been successful in performing 

virtual exams.

We remain sensitive to the challenges presented 

over the past year and feel that our collaboration with 

our Federal counterparts and our regulated entities has 

been excellent. As we collectively evolve towards a 

future of work environment, our continued partnership is 

most welcomed. The FDIC Northeast Region, under Frank 

Hughes' leadership, continues to provide a forum for 

terrific dialogue and exchange of information between 

state and Federal regulators. We look forward to 

continuing Massachusetts' part in that conversation. 

Thank you very much.

MEMBER AFDAHL: Thanks, Mary. Start out in 

South Dakota just to give a level-set. We have 42 banks 

with 32 and a half billion dollars in assets. Overall

banking conditions are stable, although substantial growth 

in assets driven by deposits have impacted critical ratios 

as I'm sure others have seen.

Total assets and deposits year-end 2020 were up 

over 17 percent from 2019. That had a heavy effect of 

driving down the median Tier 1 leverage capital ratio, net 
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loans and leases to assets, but also drove down the past 

due non-accrual ratio as well. So, one thing we're 

watching, the net interest margin is declining here as 

well.

So, the search for yield will be something we're 

watching closing. With all of the stimulus provided to the 

agriculture sector last year, demand for farm loans is 

down. That's the primary driver of most of our banks in 

South Dakota. So, we'll be watching what they do next to 

generate revenue.

PPP volume, still outstanding, declined from 

just short of 1.6 billion dollars on June 30th last year to 

1.24 billion as of 12/31. So there was some modest decline 

there in balances. But given the intended short-term 

nature of those, it hasn't come down as quickly as I'd 

expected.

On the other hand, loan modifications declined 

from over 2 billion dollars on September 30th, to 382 

million dollars at the end of the year. So, we've had 

substantial decline in those balances. From an operations 

standpoint, our banks are mostly back to normal operations 

given the dramatic decrease in cases in our state.

From a state economic standpoint, our 
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unemployment rate as of February this year was 3.1 percent,

which is a great improvement since the middle of last 

summer. Just for context, it was 2.9 percent a year ago in 

February. So, we're almost back to where we were before 

the crisis. But, obviously, it's not been an even return. 

Leisure and hospitality is off over 12 percent, and mining 

and logging is off by 9 percent.

From a state revenue perspective, I think most 

states have seen a lot of one-time funds provided. So, our 

legislature just wrapped up their session and dealt with 

the kind of, I'd say, unprecedented task of spending all 

those one-time funds in a one-time manner, which in a state 

of our size was not an easy task. But, I think they made 

some pretty good long-term investments in the state's 

future.

Moody's and CNN have a back to normal index. 

South Dakota according to their graph, we're at about 91 

and 92 percent back to normal in comparison to the U.S. 

average at 81, 82 percent. So, we're trending a little bit 

above the national average there. But knowing how much of 

that is real economic activity versus stimulus funds, is 

pretty hard to tell right now.

As others have indicated, South Dakota is doing 
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pretty well on vaccine rollout. We're currently third per 

capita in the country, with distribution at about 28 

percent people fully vaccinated. From an asset quality 

standpoint, one thing we're watching that's kind of on an 

alarming trend is the 90-plus day past-due loans for 

residential loans held by the GSEs.

They're trending up -- that forbearance period 

has been extended again. So really, that's an unknown of 

what's going to happen with these loans. It seems to be a 

lot of people that are several months behind on those 

payments. It seems the longer this goes, it's unlikely 

they're going to be able to get out of that without some 

kind of uptick in foreclosures.

From an agriculture perspective, old crop prices 

for corn and soybeans picked up early this year. So I 

think quite a few producers were able to sell their crop 

from last year. But they have recently softened again as 

certain export markets kind of backed away a little bit.

For new crops, though, this would be for crops 

yet to be planted and harvested, there's more optimism with 

soybeans and corn based on -- but again, it depends a lot 

on what China and other large export purchasers do. But so 

far, soybean exports to China are up threefold over last 
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year. Overall, the soybean exports are up 70 percent over 

last year to all destinations. So, pretty good news there 

so far.

The one downside -- big downside risk right now 

in South Dakota is drought conditions. A hundred percent 

of the state is abnormally dry, 92 percent of the state is 

in moderate drought, and then over half of the state is in 

severe drought-- we have a little pocket of extreme 

drought. So, not nearly as dry as the very southwest 

region of the United States, but still dry enough that if 

this drought level persists, there will likely be an 

impact to pasture grass, hay, and crop production in this 

current year.

And then one kind of index I track a little bit 

just for maybe sentiment as much as anything is machinery 

and equipment sales. U.S. tractor sales are up 34 percent 

year-over-year for the January and February period over 

last year. And, then U.S. combine sales are up 25 percent 

in that same period.

So this is likely a combination of delayed 

purchases. We had a few years in a row that were a little 

bit tougher from a cash flow standpoint. So, I think a 

lot of producers put off those kind of purchases-- kind of 
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a backlog probably of pent-up demand, but also a surplus 

of cash from a pretty good fall harvest.

Prices really picked up on increased export

activity. Then obviously, as I talked about at the last 

meeting, our state received a lot of stimulus funds to the 

agriculture sector. So, I think those two things 

combined, at least in our state and I assume in other 

areas, to drive those sales.

A couple wildcards for us, our state just 

legalized hemp and our plan and rules have all been 

approved and put in place. So, we just issued some 

guidance. So we'll likely see for the first time hemp in 

production in our state.

So we'll be working with our banks to navigate 

those challenges and uncertainties. And, medical 

marijuana was also approved. So, that'll go into effect 

on July 1st with administrative rules to be adopted by our 

Department of Health later on in the year.

And to complete the hat-trick, adult use is 

also approved, by voters last November. But that issue 

has been challenged from a constitutional perspective, and 

that's currently being appealed to the South Dakota 

Supreme Court. I'm not exactly where that one ends up, 

but it's something we're watching very closely. 
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So, that's kind of the quick wrap on South 

Dakota. So I'll turn it over to my counterpart, Ed Leary 

from Utah.

MEMBER LEARY: Chairman McWilliams and members 

of the FDIC Board, thank you for the opportunity to serve 

on this Board. I'm Edward Leary, Utah Commissioner of 

Financial Institutions. Utah has 37 FDIC insured banks 

with total assets of 363 billion. We had two de novo 

banks that were approved last year open since our last 

meeting.

While COVID incidences in Utah are declining 

and some restrictions are being lifted, there is no return 

to office authorization for the Utah DFI. Myself and a 

few members of the management team have regularly worked 

from the office. However, all meetings and examinations 

are conducted entirely virtual.

The Utah DFI has a board of bank advisors,

comprising senior management of state banks. The board 

meets quarterly. Based upon some of the recent 

discussions, the following are examples of topics raised 

and discussed that I thought would be helpful. As

mentioned, cannabis banking and the inability to safely or 

soundly service those businesses; regulatory expectations 

post-COVID; how community banks engaged with strategic 
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partnerships; vendor management issues comply with approved 

processes and procedures; all aspects of PPP loans; the 

ongoing issues of cyber threats and cyber security; how to 

treat virtual and crypto assets and currency; community 

bank consolidation; the increasing pressure on net interest 

margin; hiring and keeping a well-trained staff. I thought 

these represented subjects that Utah bankers want to talk 

about.

Utah economy is doing much better than expected 

a year ago. In December, Utah had regained all the jobs 

lost during the pandemic. At that point, I was told Utah 

is one of two states to do so.

As mentioned in South Dakota, Utah's 

unemployment rate is currently 3.1 percent. However, 

concerns are prevalent in housing affordability. Median

home value has increased 12.7 percent, December 2019 to 

December '20. The national average was 8.4.

Also mentioned before, weather and environmental 

issues continue to adversely affect Utah and Utah banks.

From the lack of winter snow, not good for ski resorts, 

skiers, and travel-related industries, not enough snow 

packs to sustain our water throughout the year, to summer 

fires, both within Utah and other western states that 
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adversely affect our air quality. Yesterday, Governor Cox 

issued an executive order declaring a state of emergency 

due to drought conditions.

I wanted to also renew a plea to the FDIC from 

the last meeting that the FDIC do all it can to harmonize 

and standardize the various approaches between the federal

banking agencies on CRA. Yes, CRA desperately needs to be 

modernized. We would not want bifurcated regulatory 

standards that could disadvantage state-chartered banks.

The Utah DFI hired eight new examiners in early 

winter. Testing and interviews virtually was difficult. 

Onboarding was difficult. We are now dealing with the 

reality that so much of a new examiner -- newly hired 

examiners’ ability to understand the job of bank 

examination comes through on-the-job training. As we 

onboard new examiners in this age of COVID, we are 

concerned about the absence of that in-the-room training, 

knowledge, and culture transfer.

In conclusion, I want to thank Regional Director 

Kathy Moe for establishing and conducting biweekly and now 

monthly Zoom meetings during the pandemic for the states 

and federal banking agencies in the West. The coordination 

and cooperation with the San Francisco Regional Office and 
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the Salt Lake City Field Office has been extraordinarily 

helpful. Thanks again for this opportunity to address you. 

I'll now pass it to Dawn Holstein of West Virginia.

MEMBER HOLSTEIN: Hello, everyone and good 

afternoon or good morning, as the case may be. It is my 

pleasure to be with you today, and I would like to thank 

the FDIC and Chairman McWilliams for this opportunity. I'm 

Dawn Holstein, the Commissioner at the West Virginia 

Division of Financial Institutions.

Here in West Virginia, the banking conditions 

remain stable. Our West Virginia state-chartered banks 

have weathered the pandemic well and have demonstrated 

their resiliency. There has been no obvious deterioration

and they remain very liquid and stable. Our banks continue 

their participation within the PPP program and have 

continued to service West Virginia customers and business 

owners without disruption throughout the pandemic.

One thing I wanted to bring up is the consumer 

complaint level. That is they have remained very stable 

through the pandemic. And, I felt like that was a point of 

evidence that our consumers and businesses are being served 

by our institutions without incident or any kind of uptick 

due to the pandemic.
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Our office, along with our financial 

institutions have begun a return to normal operations on a 

gradual and measured basis. It's kind of case-by-case. As

we kind of monitor the cases of COVID and our vaccine 

rollout, which has been very efficient. I think we're about 

at 24 percent at least for first dose and about 15 percent 

second doses.

So, it has increased confidence that we can get 

out and about a little bit more, and it's just opened 

everything up. Our restaurants are back to 100 percent 

occupancy and things like that. So, it has really helped 

to pick the economy back up.

Our examinations, on that front, we have 

continued on our regular schedule throughout the pandemic. 

And, we will continue, though, operating remotely through 

June 27th of 2021. Then we'll reevaluate a little prior to 

that to see where we stand.

Everything has gone smoothly with the remote 

examinations. It has been trying at times with 

communications and things like that, scheduling meetings 

and things like that. But, we've all experienced that, all 

kind of worked through it. I think some prefer it, but I 

think the face-to-face value still can't be discounted. 
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And that is our anticipation is to return to that face-toface examination process when everything appears to be safe 

for our employees as well as the bank employees.

The economy in West Virginia is also stable and 

has seen a little bit of positive movement. I heard the 

other rates of unemployment and that would probably be a 

wish rate for us here. But, it's all relative, I suppose. 

Although our unemployment rate as of January was still 6.6 

percent, that is about half of what it was at the height of 

the pandemic. So, it is positive, and that's what I'll 

take from that.

Also, our tourist and hospitality markets, as 

they continue to open up, will increase our economy here in 

West Virginia as there is a heavy reliance on those tourist 

activities. Overall, West Virginia is doing well, and we 

continue to remain cautiously optimistic. Our agency, as 

we have spoke here on some comments of information 

technology, has always been a priority of our agency. And,

I think that really came to fruition throughout the 

pandemic that our banks were prepared; and they have been 

very attuned to any of the cyber attacks that might've been 

related to the pandemic and have been very responsive.

Also, we operate a FinTech sandbox as of midyear 
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in 2020; it was opened. We have had a little activity. I 

think the pandemic has kind of altered that a little bit of 

maybe what could've been.

But, we look forward to continuing our 

dedication to innovation and those types of entities as we 

move forward and come out of the pandemic. Our legislature 

also is very attuned to FinTech and innovation. And so we

are at mid-session currently and are working through a few 

small bills relating to those items, trying to do a little 

cleanup, to make things more clear to attract possibly more 

entities that want to go down that path.

I really would like to thank the Atlanta Region 

of the FDIC. Over my time as Commissioner, which is the 

past five years or so, we have really developed a great 

relationship of transparency and working together. So, I 

really appreciate that relationship that we have, and I 

just wanted to express that here.

Other than that, I think we are holding our own 

here. We are very, as I said, cautiously optimistic for 

the future. And as we come out the pandemic, we are all 

looking forward to getting back to our face-to-face 

meetings and examinations as we go forth. So with that, I 

would like to turn it over to my friend, the Texas 
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Commissioner, Mr. Charles Cooper.

MEMBER COOPER: Thank you. So, I would like to 

add my compliments to Chair McWilliams for establishing 

this advisory committee. I know it really helps me to hear 

what my colleagues from across the country are going 

through. So, I think it helps everyone.

For background, we have 217 banks that we 

regulate. And now, for a year, we've been dealing with the 

pandemic. On March the 16th through proclamation, we gave 

our banks the flexibility to close all or part of their

offices in order to protect public health as long as they 

continued to serve the needs of their customers.

And, like in other states, this obviously ranged 

from restricting lobby traffic, perhaps closing down 

lobbies, diverting customers to drive-through facilities, 

and in some cases, closing entire branches, directing 

customers to nearby branches. But as of today, and I did a 

check yesterday, the majority of our banks have returned to 

normal, albeit they are observing CDC guidelines.

Most recently, Texas experienced the worst 

winter storm that we've had in a century that resulted in 

widespread power outages and extensive periods of loss of 

power and water damage due to frozen pipes. So, this is 
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estimated to be probably the costliest disaster in state 

history and the costs are continuing to climb. It also 

resulted in loss of life of about 50 Texans.

Just like we experienced when we have hurricane 

issues on the Gulf Coast, our banks rose to the occasion 

despite the obstacles. To me, it was heartwarming to see 

and to observe what our banks did in order to serve their 

customers and their communities. Also, despite this 

disruption that's been going on for at least a year, we've 

only received one consumer complaint about the lack of 

service.

As nearly everyone did, we paused our 

examinations, our exam process on March 18th through the 

end of May. We concentrated on working and assisting our 

banks. We resumed our examination activity in June. All 

of the examination activity since then has been offsite.

We do believe that we are obtaining the 

necessary information that we need to properly evaluate our 

banks. Based on the examinations that we have processed to 

date, it appears that our banks are doing exactly what's 

expected of them to serve their communities. And, there 

has only been a slight deterioration in asset quality.

Obviously, this is due in part to the stimulus 
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package. And, now we're receiving another stimulus 

package, and certainly that helps. But, we have to closely 

monitor this situation. As someone said earlier, I'm 

cautiously optimistic about the future condition of our 

banks here in Texas.

I continue to be concerned or think that the 

primary threat to our banks is possibly not the asset 

quality, and possibly not the pandemic, and possibly not 

the weather issues. I am concerned about the cyber threat 

as I think Mary Gallagher mentioned a little bit earlier. 

This is something we all have to be involved in and work 

on. It continues to grow in sophistication and intensity. 

So that concludes my comments, and I'll pass it on to Tony 

Salazar of Maryland.

MEMBER SALAZAR: Thank you, Charles. Thank you, 

Chair McWilliams. I appreciate the opportunity to be part 

of this group and your hosting this and to the FDIC staff. 

They've all been wonderful to deal with as we go forward.

I guess I'm your local regulator here for you 

and the Vice Chair. So if you obviously, as citizens, have 

any complaints or comments or praise, please feel free to 

reach out and let me know. As you're probably aware, in 

the State of Maryland, the governor and I'm sure most of 
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the other governors as well, they're all taking steps to 

focus on protecting their citizens from the COVID. And,

everybody has done their different set of balancing 

calculations.

Here in Maryland, the efforts have been really 

placed on working on personal protection issues, and that 

seems to have been successful. The concern was about 

hospital rates and utilization. Maryland's hospitals have 

managed to handle the situation and so far, so good.

Trends are all moving in the right direction. 

You recently saw that the governor and many of the local 

jurisdictions have started relaxing their restrictions on 

the citizen activity and movement. So that is continuing.

It is my understanding that in a few short 

minutes from now, Governor Hogan will be on to discuss some 

changes in the COVID vaccine, which has also been rolling 

out. So, we'll see where that goes. And I know that there 

has been a push in the State of Maryland to make sure that 

the vaccine distribution is done equitably to all the 

different populations and ethnic groups here in the state.

So they have an equity task force that's been 

working on that. That's an important point to the State of 

Maryland. So, they are doing and working on that.
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Our office and many of the state offices as well 

as some of the banks, are all working remotely. We're 

handling examinations along with the FDIC and the other 

federal regulatory teams on a remote basis. And at least 

from our perspective here, our offices will probably 

continue to work remotely at least through the spring. My 

guess is that'll go farther, but I can tell you with 

certainty that we will be going through till the early 

summer on that.

The state has been doing well from an economic 

perspective. Some recent data that I saw suggested that 

Maryland had at least 85 or more percent of its business in 

industries that would be considered stable industries and 

not necessarily subject to a potential disruption from the 

COVID vaccine. And, I think you're seeing that.

I just had a forum this morning with some of our 

local bankers from a variety of the areas in the state. 

The reports back were good; I think that reflects where 

Maryland is at this time. Like some of the other states, we

are seeing improvements in a lot of the state metrics. So,

we're happy about that.

In terms of protecting the citizens, Maryland 

right now is one of the few states with a continued 
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foreclosure moratorium. We're in the process of reviewing 

that. But, I know the federal foreclosure moratorium lasts 

through the end of June. We have eviction protections in 

place that are some of the strongest in the country. And 

we'll be taking steps to monitor that and make sure that 

the state can and the citizens of the state can have the 

smoothest path possible back to normalcy.

Right now, just as a reminder, we don't have a 

huge number of state-chartered banks. The banks that we do 

are really what you would consider the community banks. 

They're small banks. We only have two banks that are over 

10 billion, and those just recently hit that threshold. 

So, they're only slightly over that.

But, be that as it may, the banks are generally 

operating at this point either back to normal with masking 

and appropriate distancing – and they're working perhaps 

with their offices in remote operating mode. Or, they're 

rotating staff through their offices to limit the risk of 

COVID.

The bankers have reported right now that they're 

all having -- enjoying, I guess, to a certain extent --

high levels of liquidity. They've managed that movement to 

the remote environment very well. Credit conditions, right 
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now, have reported to be good. There is some challenge, 

though, with the limited mobility and ability to get out 

and market in the traditional ways for generating loans 

short of the PPP and some of the other government stimulus 

programs out there.

Good news, delinquencies are low. Hospitality 

loans, which there was a lot of concern over given our 

Eastern Shore and areas out in Western Maryland have proven 

surprisingly stable right now. So, we're not seeing that 

as an area that's rising.

I know there is a concern about real estate, 

particularly in the Northeast, which traditionally has 

that. But, that seems to be holding up right now as well. 

Housing starts are up. Housing prices are up. That's 

good, even in some of the areas that you might not expect. 

So, we are working in that regard.

The state's legislature and governor, which 

though held by separate parties are really doing the best 

they can to work towards one goal of improving the state 

and helping it go forward and making sure, like I said, 

that the citizens can navigate through this and come out of 

the COVID in the best conditions possible. The state 

passed its own COVID relief package just recently, which 
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will provide much needed funds, both to the small 

businesses, as well as to the citizens. Governor Hogan 

just presented today a supplemental budget that included a 

substantial infusion of funds for eviction prevention and 

remediation.

There is quite a focus on making sure that those 

least able to make it through this process receive the help 

and assistance they need so that they can move forward. 

Another example of that focus is just earlier this week, 

the governor issued an executive order regarding the 

garnishment, prohibiting the garnishment of the recent 

stimulus funds checks to ensure that the citizens get all 

the funds that they're entitled to. So, that is the 

continuing focus here in the State of Maryland.

And our banks have also been working in that 

regard. The Bank On Program has been promoted by the local 

association, Maryland Bankers Association. I know that 

banks are participating in that to make sure that those 

that are marginally banked or unbanked have every 

opportunity they can.

Then as I said, our majority of banks are 

community banks. So they really are the small businesses 

of the financial services world. I think it'd be fair to 
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say that the comments they would want our federal 

regulators to hear is not lose sight of that perspective of 

the small banks.

I know there's a lot of discussion on a lot of 

large issues throughout there. The climate change issue 

and how that impacts bank regulators and how that gets 

banked in. Certainly an important issue, which just by way 

or by aside, we are looking at at the state level to make 

sure that we're participants in that and we understand how 

that affects us. But, when you're a small community bank 

like a lot of the ones that we have in Maryland, I think 

the risk that they're really seeing is in how to deliver 

financial services and how to counter and recognize the 

threats from nontraditional providers, the FinTechs of the 

world and things like that.

They are -- if our small community banks are to 

be what we'd all consider to be the gold standard in 

financial services and delivery, then we make sure that the 

policies that are instituted are all conditioned and 

sensitive to their positions in the marketplace. And, I 

was happy to hear that Chair McWilliams at the beginning 

talk about some of her initiatives because I know they're 

directed towards that. But, some of our smaller bankers in 
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the state did want to make sure that that perspective 

doesn't get lost.

I also, in finishing up, want to say and 

compliment Frank Hughes and the New York team. We 

appreciate the communication that we've had; and the 

ability and the opportunities that they've set up for us to 

communicate as a group and to communicate individually. 

That really has been very valuable to help during this time 

when we're all kind of balkanized to a certain extent 

working remotely.

Beyond that, I look forward to the discussion 

later today and hearing from everyone else. I will turn it 

over now to Commissioner Hall from Montana. Thank you.

MEMBER HALL: Good afternoon, everybody. I 

thought I'd start by providing the counter to Commissioner 

Fite's world with a bit of a tale of two cities, 

Indianapolis and Helena, Montana. But, it's important to 

keep in mind that the tallest building here in Helena is 

about five stories tall. So, it will be a little bit of a 

tough comparison.

However, where Indianapolis is trying to figure 

out what to do with all of the vacant commercial and office 

space that companies are abandoning downtown as they move 
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to remote work for the long-term, Montana is sort of 

struggling with the opposite problem and that is to keep up 

with housing for all of those people who no longer have to 

live in Indianapolis, and can instead move to Montana. 

Montana has seen a tremendous growth in housing. It had 

the largest year-over-year purchase growth at 56 percent 

compared to the nationwide average of 24 percent.

Montana had a significant affordable housing 

program long before COVID. Housing materials can be very 

expensive to get here, and so housing costs are 

traditionally quite high. On top of that, this problem has 

been exacerbated by all of the people who are leaving

wherever you are and coming to where I am, who still 

believe our housing to be incredibly affordable given the 

markets that they're coming from. So, we have had 

tremendous housing price increases during 2020 and into 

2021. And, it will be interesting to see how that 

continues this summer.

Probably the most interesting thing -- and I'm 

going to keep my comments pretty short today -- that we're 

watching right now is how our state legislature will decide 

to spend the 3 billion dollars that is Montana State's 

share of the recent stimulus funds. Our legislature is 
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only here for a couple months every two years. So unlike 

some of you who deal with them all the time, they're really 

very infrequently here. However, they are overly excited 

that this money has shown up while they are here, or will 

be showing up while they are here, and that they will get 

to play a role in dictating how it is spent. 

I know every state is getting different amounts 

of money and it's all a lot of money. But, I will tell you 

that 3 billion dollars in Montana is a tremendous amount of 

money. It is going to make -- and the spending of it is 

going to be fascinating. And, I'm not sure that our 

legislature has ever been in a position to make decisions 

like this previously.

Overall, I guess Montana and its financial 

service providers are doing pretty well. We continue to 

watch declining capital ratios due to asset growth as we 

consider it incredibly important to make sure banks are 

planning for the fact that this growth seems like it's 

going to be longer term than what's thought. Clearly, 

state and federal programs have been largely responsible 

for this asset growth and, quite frankly, for the health of 

loan portfolios.

But, it doesn't really matter to me why the 
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growth is happening. What we're asking banks to do is to 

focus on the effect of the growth. We're not talking about 

ratings downgrades. We're not talking about anything 

punitive here, but to make sure that they're taking the 

steps that they can take to actively manage the situation 

to rebuild those capital ratios in a way that's appropriate 

to the risk.

I think we all kind of hung in there for a while 

thinking that since the beginning, we've all been kind of 

waiting to see how long this would last. At this point 

with the recent programs and the length of the runway, I 

think that a lot of this is here to stay. And, we need to 

make sure that the institutions that we supervise are 

treating it in that way. That they are doing the things 

that they need to do in terms of restricting some dividends 

or retaining additional earnings in order to make sure that 

they are -- that their capital ratios are in a solid place 

in the event that we do begin to have some sort of an 

economic downturn associated with some of this.

So thus far, Montana is doing great. We're 

rocking along out here. But we are sort of paying 

attention to some of these things and going to watch -- I 

mean, I really think our legislature should just all wear 
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shirts that say, we're rich, because I'm pretty sure that's 

how they feel right now. Thank you. And I am turning it 

over to Commissioner Hagler.

Actually, that's really untrue because 

Commissioner Hagler just ended up having technical 

problems. He sent me a text. So I will jump over 

Commissioner Hagler to my buddy, Ray Grace. Hopefully. 

Ray, where are you at?

(No audible response.)

MEMBER HALL: I mean, if I have to, I'll just 

keep going down the list. Lise?

MEMBER KRUSE: I'm here.

MEMBER HALL: Alright. Why don't you go ahead 

and we'll come back to Commissioner Hagler and Commissioner 

Grace. Maybe it's like a Georgia, North Carolina problem 

or something. I don't know.

MEMBER KRUSE: Yeah, I think there's a little 

delay, but I will go next. I'm Lise Kruse, and I'm the 

Commissioner in North Dakota, and I supervise 63 community 

banks with about 30 billion in assets. Obviously, I'm 

similar to South Dakota and Montana that we are a smaller 

state.

Overall, the condition of North Dakota's banking 
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industry is still healthy. With considerable exposure to 

the agricultural economy, we were grateful for a good year 

last year for our farmers. And our banks have a lot of 

liquidity at the moment, and that's just due to less loan 

demand from agricultural producers, but also due to the PPP 

loans and some of the pandemic-related relief.

So, the economic relief and assistance provided 

to our citizens and small businesses during the pandemic 

has helped the overall economic well-being in our state. 

But, we have yet to see a widespread negative effect from 

the pandemic on our banks. The hotel industry is where we 

see the most pressure due to reduced travel, but there were 

recently some grants available in our state for that 

sector, so we're hoping that that will help.

Our banks have been able to stay open, and we do 

still have a few locations who are limiting lobby access. 

They're still continuing to serve their communities. I 

have not had any complaints during the whole pandemic where 

citizens have not had access to their banking services.

Our exams have continued without pause; and the 

remote exams are going really well. And I have received 

positive feedback from our institutions about the remote 

exam process, both when they talk about FDIC and when they 
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talk about the state. So, I believe that will be very 

helpful with that feedback as we evaluate our future exam 

processes. I anticipate, at least for our state, that even 

when we get back in person, we may not need to send an 

entire exam crew to the bank. And, that should help for 

our examiner turnover because that's always been an issue 

due to the excessive travel because of the distances in our 

state.

What has helped our economy overall is that our 

state never shut down in the last year. Any restrictions 

that we have had are now gradually being removed. At this 

time, COVID contagion is low and vaccines have been 

distributed effectively. I believe we are around 25 

percent of our population that has been vaccinated at least 

once. And, I actually got my first vaccine today, so I'm 

excited about that. I feel like it's returning then to 

normal.

But then also on another personal note, I just 

wanted to extend my appreciation to the FDIC and just 

express my gratitude to your staff. And Chair McWilliams, 

it really goes to your comments in the beginning about 

being team members. Just to give you a little bit of 

context, I recently reached out to your Resolutions 
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Division for advice on bank failures and structuring of our 

law here locally.

As you may be aware, we have not had a bank 

failure in 30 years. And, as a result, our statute guiding 

bank failures was outdated. I wasn't here 30 years ago, so 

I wasn't quite sure how to go about looking at our law.

So we ended up redacting the whole chapter, 

introduced a new chapter in our law just in case we ever 

need it. I hope we can go another 30 years. But, I would 

not have been able to tackle that without the help from the 

FDIC.

Your staff provided such great guidance and 

direction, and I just really appreciate that I could reach 

out like that. And, I really find it also comforting to 

know that we can coordinate as a state and the FDIC and we 

can work together for the benefit of our community banks 

and citizens on important issues.

That concludes my remarks. I will allow the 

other Commissioners to get their technical issues resolved. 

So, I will just go on the schedule, and I would like to 

turn it over to Greg Gonzales in Tennessee. Thank you very 

much.

MEMBER GONZALES: Well, thank you, Chairman 
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McWilliams, Director Gruenberg. And I also want to say 

thank you to Regional Director Kristie Elmquist for the 

partnership that we have with the Dallas Regional Office; 

it's very good. 

The condition of the Tennessee banking system 

remains strong. While the overall risk profile of 

institutions has increased, risk management practices 

appear sound, satisfactory capital and earnings 

performances. Some CAMELS components ratings have adjusted 

both upwards and downwards. But, both component and 

composite ratings have remained relatively stable overall. 

Certainly federal, state economic relief has impacted the 

health of our economy, and, therefore, the Tennessee 

banking system to a significant extent. We'll have a 

better understanding of conditions somewhere further down 

the road. 

The Tennessee banking system is primarily statechartered; and it has consolidated considerably in recent 

years, but has grown significantly as well due to multiple 

conversions from a federal to a state charter.

We're very interested in the strategic planning 

that our banks are going to be going through. I'm going to 

be sitting in with one of those strategic planning sessions 
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here soon; and looking forward to hearing how they're going 

to go about adapting to whatever the new normal may be.

We've heard some concern over increased taxes

coupled with an already compressed margin as to the impact 

on capital and growth. We're going to be watching the 

housing market closely. We'll see how things develop once 

a hot market cools off somewhere in the future. We've had 

some pockets of appraiser availability issues, but a good 

dialogue between bankers and appraisers has been 

established over the last couple of years. That's going to 

be beneficial to us.

With regard to commercial real estate, while we 

do have a small number of banks with non-owner-occupied CRE 

in excess of 300 percent, it appears that the system as a 

whole is well diversified. And while there may be some 

banks with hotel or restaurant loans that they're watching 

pretty closely, there doesn't seem to be a large loan

concentration at the majority of banks and industries 

directly affected by COVID. 

One example for us is in the hospitality, 

travel, and tourism sectors, which are very important for 

Tennessee. Clearly, there's been an impact to the state, 

but a bright spot is in East Tennessee. One of our state 
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banks reports that tourism in the Smoky Mountain area has 

been resilient and in some ways extraordinarily so. It's a 

good story, especially coming just a few years after the 

mountain wildfires. The Great Smoky Mountains National 

Park actually had one of its largest number of visitors on 

record in 2020.

Another important development for the state 

including our banking system is Governor Bill Lee's 

broadband initiative. Broadband accessibility, as you 

know, is a key to thriving communities, especially in light 

of greater reliance on virtual activity such as online 

banking. This is certainly going to help innovation in 

Tennessee.

I do think the so-called digital divide between 

those citizens with broadband access and those without, who 

are often in rural areas, has been magnified over the last 

year and certainly impact access to banking services for 

some of our citizens.

Governor Lee is proposing that, based on the 

remaining unserved portions of the state, a one-time 

recommended 200 million dollar appropriation will build 

high-speed internet access to virtually all homes, schools, 

farms, and businesses in Tennessee within five years.
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One response from our department is what we've 

done from an IT regulatory standpoint. About three years 

ago, I established a position to lead our regulatory IT 

operations department-wide. We're now expanding a team 

around this person to enhance our regulatory capabilities 

in the IT area. Related observations that we're still 

seeing quite a bit of branch activity despite what's 

happened over the last year.

Finally, when I think about banking conditions 

in Tennessee, I think about banking services, especially to 

those citizens who may be the most vulnerable in this 

environment. Tennessee is home for minority depository 

institutions, including the oldest continuously operating 

minority bank in the United States. At Governor Lee's 

direction, we are enhancing our partnership with minority 

institutions to help support the communities that they 

serve because there are historic opportunities for these 

institutions to receive both private and public support.

We are expending time and resources to assist

these institutions in taking advantage of these 

opportunities. With that, thank you, Chairman, again for 

bringing this group together. I'll just keep this in order 

as well and turn it over to Kevin Allard in Ohio.
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MEMBER ALLARD: Thanks, Greg. Good afternoon, 

Chairman McWilliams, Board Member Gruenberg, and FDIC 

staff. I'm Kevin Allard, Superintendent from Ohio.

I'm pleased to report out this afternoon 

regarding the status of Ohio banks. Ohio banks remain 

strong through the pandemic, although declining median Tier 

1 capital ratios stood at 10.6 percent at year-end, even 

despite significant deposit and asset growth.

More importantly, we have not seen any 

significant asset quality deterioration to date. In fact, 

Ohio banks, with regard to 4013 deferrals, saw a decline of 

91 percent in these deferrals since this information first 

started being collected.

Obviously, the other trend we're paying 

attention to is compression in the net interest margin. 

Ohio banks are not immune to this trend. Ohio banks' 

median net interest margin stood at 3.38 percent at yearend and a ROA reported at a median of 82 basis points.

With regard to corporate activity, a couple 

things to note. Like others, we are seeing consolidation 

in the state as a result of merger activity, especially in 

the early part of this year. Secondly, we are seeing our 

institutions pursue new opportunities in new markets by 
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opening branches or pursuing branching opportunities. 

Thirdly, we had Ohio's second de novo bank open on February 

22nd, and we have a third de novo bank that is in the 

organizational phase hoping to open this spring.

Lastly, we have had some very recent interest in 

MDIs in Ohio. And, obviously, we are very supportive of 

that effort. With regard to banking and the need to 

innovate, in Ohio, we've tried to be very proactive on this 

front, fostering an environment that encourages prudent 

innovation. As examples, we have used multiple banker 

outreach opportunities to provide information to Ohio banks 

with regard to prudent innovation and prudent risk 

management considerations.

Internally to help keep us informed in terms of 

technologies that are happening in the marketplace, over a 

year ago, we formed what we call our Technology Advisory 

Group or TAG. Our TAG is made up of CIOs from some of our 

more innovative banks and credit unions, and we have 

involved our federal partners in this effort as well. This 

group meets three times a year and has discussed such 

topics as what we call disruptors or hindrances to 

innovation, cybersecurity, data governance, and more 

recently, supply chain threats.
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Thank you, Chairman, for your comments with 

regard to banking and innovation and the need to innovate. 

Like many of my peers in Ohio, we have an advisory group, 

the Ohio Banking Commission. At our Ohio Banking 

Commission meeting last month, we did have a discussion 

with regard to banks and innovation, and several of our 

members suggested that regulators should collectively 

possibly revisit existing guidance around this area, 

especially with regard to bank innovation and more 

specifically bank-FinTech partnerships. These members have 

suggested that perhaps regulators could collectively go 

back and use existing vendor management guidance as a 

baseline and build out that guidance so that it is more 

beneficial to an ever evolving bank-FinTech partnership 

environment.

With regard to future examinations in Ohio, 

especially post-pandemic, we are discussing internally what 

the hybrid offsite/onsite examination model would look 

like, including establishing criteria for when we feel we 

need to go onsite. We will continue to engage our federal 

partners at a local level in these conversations so that 

Ohio bankers can continue to benefit from the seamless 

supervision of banking in Ohio.
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Chairman McWilliams, that is my report this 

afternoon. I thank you for the opportunity, and I'll turn 

it over to my peer, Commissioner Thompson in Oklahoma.

MEMBER THOMPSON: Thank you very much. This is 

Mick Thompson, Bank Commissioner in Oklahoma. And I'd like 

to thank the Chairman for establishing this FDIC Advisory 

Committee. I think it's very beneficial to the state 

system.

As far as Oklahoma, we started reopening the 

state back in June and phased it in. And, it's worked very 

well so far. Our state budget is about 14 percent above 

the certified amount, which was certified back in December, 

so the state is doing very well.

We had a program that we worked with the 

Department of Commerce with, with the state Banking 

Department, set up a program for small businesses. We're 

talking about one, two, three-person businesses to do, 

through the Department of Commerce, a grant program to help 

those businesses. We issued over 100 million dollars in 

small loans to -- small grants to those.

As far as examinations, we really never stood 

down. We worked with our banks. But, we started doing 

remote back March 19th. We're current on the exams and 
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have not had any issues working with the banks.

We plan on looking at going back into the banks 

sometime probably in the summer because we surveyed every 

bank that is up this year. For an exam, every one of them 

without question wants us to be back in the bank in some 

form. So, we'll start sending back in, on a limited basis,

some of our exam team onsite sometime this summer.

We've had great asset growth this year. Banks 

have had a good year. But, I would agree with Mr. 

Gruenberg that we're focusing on commercial real estate and 

looking at a proposal in a year or two what's going to 

happen with all these empty buildings as people continue to 

do more and more telework.

I want to thank the Chairman and her team for 

all working together in support. We have a great 

relationship with Dallas FDIC; and we couldn't have a 

better working relationship than we have with them. I look 

forward to the continued relationship to protect our 

consumers. And, most everything that everybody has already 

talked about, I won't bring it back up. It seems to me 

that the state is doing very well under the circumstances.

With that, I'll turn it back. I don't know if 

you're going to go back in order or whether the Associate 
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Director is going to speak now.

MS. KEA: Let's go ahead and see if Commissioner 

Grace is able to join us.

MEMBER GRACE: I am here. Can you see me and 

hear me?

MS. KEA: We hear you fine. I think --

(Simultaneous speaking.)

MS. KEA: And we see you.

MEMBER GRACE: Okay, good. Thank you. I guess 

that's a good thing. But at my age, I'm not really sure 

anymore.

Chairman McWilliams, Director Gruenberg, thanks 

very much for the opportunity to address the group today.

I thought I'd start with just a brief overview 

by way of giving some context about North Carolina banks. 

We currently have just 40 state-chartered banks. North 

Carolina was heavily hammered by the consolidation trend 

years ago. This is near a record low number of banks for 

us.

The smallest of our banks is the Unit Savings 

Bank in rural eastern North Carolina, with just over 15 

million dollars in total assets; and our largest bank is, 

of course, Truist Bank with total assets of 496 billion 
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dollars and nearly 2,800 branches spread across 17 states 

and the District of Columbia. Currently, we have 11 banks 

greater than a billion dollars in total assets. And, these 

banks are serving markets that range from small rural 

agrarian communities to metropolitan, fairly large cities 

such as Charlotte and Raleigh.

At year-end 2020, our aggregate total assets 

under supervision were 589 billion dollars. That's up 10.7 

percent year-over-year. Aggregate total deposits, 472 

billion dollars, up 16 percent year-over-year; aggregate 

equity capital, 74.3 billion dollars, up 3.6 percent yearover-year. And, the aggregate capital ratio for our banks 

is 12.53 percent, which is down from 14.63 percent yearover-year for reasons that I think have already been 

clearly demonstrated here.

Aggregate earnings have slipped from 0.63 

percent on average assets in 2019, to 0.53 percent for 

2020. The key to this, as we can all guess, was a slim net 

interest margin, 3.29 percent down from 3.8 year-over-year. 

Overall, our state banks have navigated the pandemic 

surprisingly well. They participated in a robust way in 

the PPP program, although in round two, we note 

consistently that demand for PPP loans is falling and the 
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average size of those loans is also falling.

We've conducted 15 examinations during the 

pandemic from March to current date. Over those 

examinations, we're pleased to note that there was one 

upgrade in CAMELS component - composite and no downgrades. 

We have no four rated banks or worse.

I think it's fair to say the North Carolina 

banks are strong. They're well managed and well 

capitalized. Asset quality appears to be strong, although 

we have obviously reason to have some questions about that. 

And, our banks have been creative and resilient in serving 

their customers with minimal disruptions.

Assets and deposits grew, although, of course, 

PPP lending provided a significant offset to the soft --

relatively soft organic loan demand we've seen, as well as 

a fair share of deposit growth as many of our PPP 

recipients parked their loan proceeds in banks and did not 

spend them. A thin net interest margin largely 

attributable to protracted low interest environment driven 

by a monetary policy is probably the most common complaint 

I hear among our bankers and has contributed to soft 

earnings. This is a particularly difficult problem for our 

community banks as they often can't offer the sort of 
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services that generate non-interest fee income to offset 

soft interest income.

On a positive note, our Bankers Association has 

established a DEI council to work on programs to bank the 

unbanked. And, I've heard high praise for the FDIC's DEI 

policy which is being used by our North Carolina Bankers 

Association as a guide for their program. I've also heard 

particular praise for Victor Galloway, with whom they've 

been collaborating. All of our banks now participate in 

the Bank On Program.

What are some of the things we're concerned 

with? I've had multiple conversations with bankers in the 

last several weeks as well as my fellow colleagues here at 

my agency. In no particular order of importance, they are 

as follows: uncertainty over the future of the economy, 

huge federal outlays, despite strong indicators of a 

rebounding economy, bring fears of another bubble such as 

2008 or of rampant inflation.

Monetary policy and continued easy money 

reinforce these concerns. Are we embracing, at last,

modern monetary theory? Adjustments to businesses and 

consumers as we return to a, quote, new normal, unquote; 

for example, commercial real estate, especially office and 
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retail space, will bricks and mortar utilization be sharply 

curtailed and what will this do to values of these 

properties?

The cranes are swinging noticeably in downtown 

Raleigh where my office is located and similarly in 

Charlotte and other North Carolina cities. I'm a little 

worried at the number of high rise commercial buildings 

that are going up with office space and residential 

construction. I'm wondering who's financing that, and I've 

instructed my people to be very attentive to that as they 

conduct examinations because I'm worried about sort of an 

intuitive feeling that demographics are shifting.

The millennials who love to live downtown with 

the urban lifestyle are, contrary to what was previously 

said about them, now beginning to buy houses out in the 

suburbs as they grow up and marry and have families. That

is driving up residential real estate prices in the suburbs 

and some outlying communities to pretty extraordinary 

heights. The prices are typically now super-heated. And,

when a house goes on the market typically in the Raleigh 

area or the Charlotte area, it triggers bidding wars. Most

homes sell very quickly at some positive multiple of the 

listing price.
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One phenomenon we're watching carefully is the 

accelerated use of mobile banking platforms. My concern 

there is that obviously the COVID pandemic has accelerated 

the trend toward mobile platforms. That was already well 

underway. My fear is that some of our smaller community 

banks will have difficulty keeping up with that technology.

There's considerable concern about whether there 

will be significant changes in the regulatory environment. 

For example, will there be a return to more rigorous 

enforcement, especially in the areas of consumer 

regulations, and CRE, and climate change?

Finally, I was glad to hear a couple of my 

colleagues echo some concerns that I have and had a 

conversation with one of my bankers about this morning and 

that is cybersecurity.

I'm wondering if it's now time to push banks 

into buying a more secure defensive system. I think it's a 

bit discouraging to hear that some of our banks are 

reluctant to spend the money it takes to upgrade their 

cybersecurity. But, this is an existential and immediate 

problem, so I think we may need to become more aggressive 

here.

Finally, I'd like to reiterate the economy. In
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that regard, if I might, I'd like to close with a comment 

by one of my favorite economists, Thomas Sowell, who wisely 

said, “The first lesson of economics is scarcity: there's 

never enough of anything to fully satisfy all those who 

want it. The first lesson in politics is to disregard the 

first lesson of economics.”

As an old regulator who examined and supervised 

banks during the hyperinflation years of the '70s and early 

'80s, the dot-com bubble, and the Great Recession of 2008 

to 2012, that echoes with me today. I'm worried that 

although short-term economic indicators look very bright 

indeed, I'm concerned that we'll have a sugar high from the 

volume of money that's being dumped into the economy in the 

face of what already appeared to be a robust recovery. And 

with that, I will conclude my remarks with thanks for the 

opportunity to address you all.

MS. KEA: Thank you, Commissioner Grace. Before 

we end this roundtable of our members, I would like to go 

back. I think that Commissioner Hagler might be on the 

line with us now and would like to give him an opportunity.

MEMBER HAGLER: Thank you. Can you hear me now?

MS. KEA: We can, yes.

MEMBER HAGLER: Thank you so much, and I 
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apologize for the complications on my end disrupting the 

flow today. One of the complications of having a lot of 

folks on my team working remote is that the VPN network 

with them moving files back and forth seems to have spiked 

during our conference call today. So, can't win for losing 

sometimes.

But thank you again for the opportunity to speak 

today, Chairman McWilliams, Director Gruenberg, and my 

fellow members of the Advisory Board. I'll try to keep it 

short and sweet because so much of what has been said, I 

was able to check off my comments as we went along. 

Georgia, as a state, is doing very well. State 

revenues for 2020 were actually higher than 2019, which I 

don't think is unique to us. The unemployment rate is 

trending down, and it is below the national average. Those 

kind of statistics, though, do worry me because I think it 

sometimes overlooks the disconnect of folks that have 

dropped out of the workforce.

I am particularly worried about that being 

disproportionate on the women in Georgia. From what I 

heard in the environment but also from what we've 

experienced within our own banking department here, we've 

had folks that have had lack of childcare and schools that 
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were not open or available for them to return. 

Unfortunately, a lot of times it's the women, the moms that 

have to stay home to become teachers and such.

I think that's been common amongst a lot of 

departments. But we've lost a couple of very valuable 

members that just could not stay with us no matter how much 

we tried to be flexible and allow them to work various 

hours. At the end of the day, they just can't work 24 

hours a day. So, I'm hoping things will normalize and we 

get those folks back in the workforce as well very quickly.

COVID cases are trending in the right direction 

for us. I think last week was a 34.1 percent decline. So,

that's very positive news that we're excited about. 

Georgia dropped the age threshold down to 55 and opened it 

up to a lot of different medical conditions. Now we've 

swung back to the can't get appointments problem. But I 

think a lot of shots are getting into arms very quickly. 

So, that's very helpful for us.

Just to kind of lay the groundwork for our 

banking portfolio, we're at 125 banks and 120 billion 

dollars in total assets. The portfolio is also doing very 

well and, again, has shown improvement in 2020 from 2019. 

I don't think we've had any significant downgrades of any 
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components. It's largely been upgrades. Some folks that 

were having a hard time are getting off to a new start as a 

de novo, really got a shot in the arm with the PPP lending. 

So, that has helped out well.

The challenges, as had been well discussed 

today, is the high-level liquidity and cash in the banks. 

Thank goodness we had very high capital levels coming into 

this. But, with the deposits and the corresponding asset 

growth, it's really impacted the banks. Not to a point of 

concern quite yet, but it is just pouring on.

It seems like half of the PPP loans that have

been originated have not been dispersed. They're just 

sitting in accounts at the banks. Compound that with, 

again, more good news, the American Recovery Act providing 

monies for state, city, county, and the school systems. I 

think by last calculation, that's about 12 billion dollars 

that's about to hit our banks in terms of funding coming in 

and being held until a lot of decisions are made on how to 

deploy those funds.

So, bankers are kind of gritting their teeth and 

bracing for that impact, which normally wouldn't be bad. 

It's just that it's difficult to find good lending 

opportunities that has anything other than a super thin 
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price right now, so a little too much of a good thing. As

you can imagine, net interest margin compression is a real 

issue. Again, at least the PPP lending was helpful to give 

a lot of folks a boost as well.

Another complication, but one that's good for 

consumers, is that there's been a pronounced drop in NSF 

fees at banks. That speaks well for the consumer. But for 

the bank, it means we've got compressed interest, net 

interest margin as well as a drop off in fee income. So 

making it a little challenging on both sides of the 

equation.

Having had an opportunity to speak to one of our 

small dollar lenders the other day, not a bank, but they 

deal in loans under $3,000, and they had mentioned that all 

of 2020 their portfolio had not increased at all. In fact, 

it had just simply been getting paid down throughout the 

year to give you an idea. It's kind of like traditionally 

they would see this occur as we get into the income tax 

return time. But, all of 2020 has felt like an income tax 

return time for them. So good analogy in that the funds 

are getting into the hands of consumers where they need to 

be.

Still watching the hotel and restaurant 
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industries. I think their plight and challenges has been 

well documented. Coming to the conclusion similar to what 

Greg Gonzales had come up with in that I don't think a lot 

of those projects were financed at banks.

Restaurants, I imagine a lot of that -- not 

imagine, but I know a lot of that was SBA guaranteed. A

lot of them have been able to reinvent themselves with 

takeout and delivery to keep the doors open and keep things 

going. I don't think restrictions were quite as severe 

here in Georgia as they were in some other areas. So that 

may have helped as well.

In terms of hotels, they too have cut expenses 

to try to help out with the revenue. And most of our banks 

dealt with most of the better flag institutions, hotel 

chains. So again, not seeing that as bad as I might have 

expected.

One anecdotal story I thought I would share was 

one of our larger banks that had a fairly, healthy sized 

hotel portfolio rightfully thought to right-size some of 

that while they could. Even though these were struggling 

hotels, the discount that they took to move that portfolio 

off their balance sheet was much smaller than I would've 

ever expected, and I think the same was true for them. I 
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think they were very happy with their ability to move that. 

So again, I think it speaks well to future prospects of 

earnings for that industry.

Overall, bankers have a couple of challenges. 

One is how do they do a 2021 budget with last year being 

such an anomaly with the inflows of funds and such - net

interest margins being like they are. So, I think they're 

really struggling to get those 2021 budgets put in place.

And then also I think they're a little nervous 

about maybe losing some of the regulatory relief that they 

got in the last several years or maybe just the pendulum 

kind of swinging back the other direction. Bankers 

generally are very happy to comply with whatever rules and 

regulations are in place. I think it’s just the changing 

nature of those that makes them nervous because it's 

difficult in a small community bank to keep trying to 

adapt. I'm hoping that our efforts to right-size 

regulation and create relief for the community bank 

portfolio out there will continue and survive.

As Tom kicked off the report outs, mergers is a 

big concern of mine. I think we've been averaging, since 

the Great Recession, probably about ten a year and last 

year we had about six. Whenever I talk to bankers or 
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banking attorneys, there is a lot of interest in activity 

on either being the buying side or the selling side or 

both.

So I think the demand there is being pent up, 

and there's a lot of cash in hand. So I'm afraid that as 

we clear out of the pandemic, we're going to see a fair bit 

more and maybe even a surge of merger activity. That's

always a concern for me.

Also, several of my counterparts mentioned that 

the legislature is in session. Same here for us. One 

thing that I just thought I would mention is our 

housekeeping bill has passed. And for our banks, what it 

did is clarify that they can conduct board meetings 

remotely or some type of hybrid meeting.

That's been available under the governor's 

executive orders. But the Georgia law was a little vague 

on that otherwise. So we just suggested that that be 

clarified in the law. So I think that'll be helpful to our 

bankers and their board members.

That'll conclude my report out. Thanks again 

for the opportunity, and I look forward to the rest of the 

program. Thank you.

MS. KEA: Thank you so much. And, let me just 
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say thank you to all of our members for providing your 

observations and trends from each of your geographic 

regions. I'd like to invite my FDIC colleagues, Shayna and 

Camille, to both turn on your cameras now and provide your 

observations and reactions to some of what our 

Commissioners have talked with us about. Shayna and 

Camille?

MS. OLESIUK: Great. Thank you, Arleas, and 

thank you to all of the participants. I've really enjoyed 

the information and insights that I've heard today. So,

thank you very much for that.

I'll spend just a few minutes talking about some 

of our team's observations from a national viewpoint. I 

think the themes boil down to two things, which I've heard 

both of them mentioned already today. First, the improved 

economic conditions and the resilience of banks during the 

last year. And, secondly, the continued uncertainty on what 

the post-pandemic economy will look like and what 

implications that has for our major lending portfolios at 

banks, particularly commercial real estate.

First off on the economic conditions - so things 

have certainly improved since we met last October. GDP 

growth in fourth quarter 2020 was four percent, which in 
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itself is pretty good. And, the current consensus forecast 

for the full year of 2021 is for 5.7 percent growth, even 

better.

Of course, this is coming off of a relatively 

low base in 2020, and is really being boosted by the fiscal 

stimulus. And we're already seeing strong retail sales and 

strong consumer confidence in the first few months of the 

year. So, the consensus is that we will reach pre-pandemic 

GDP levels by third quarter of this year, but some of the 

more positive outlooks put that at second quarter. 

Certainly a story of recovery there.

The story is a bit different for employment. 

Taking a step back to the second half of last year, job 

growth was positive through the second and third quarters,

but relatively slow. And, it actually dipped negative in 

December.

But, the trends have certainly turned around. 

As of February, we beat expectations with a net gain of 

almost 400,000 jobs. So, that was very good news.

But despite that good news, it would take more 

than two years of job growth at that level to get back to 

our pre-pandemic employment levels. And as we heard 

several times today, the leisure sector is still the 
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hardest hit sector. It's down still about 20 percent, or 

three and a half million jobs in the whole relative to 

February 2020 levels.

The employment -- the unemployment rate and the 

unemployment story is similar. Unemployment has come down 

significantly from the highs last April, but still remains 

elevated relative to where we started the pandemic. And,

unemployment is elevated in all states across the country.

No region has really escaped this trend, and 

it's particularly still elevated in the Northeast and the 

West. And also, as I heard today, we also look at other 

measures of unemployment, such as what is known as U-6,

which measures those individuals who are not working 

because of poor economic conditions. And this U-6 number 

still remains at 11 percent in January and February of this 

year, so still relatively elevated.

Just a few comments about commercial real estate 

and then I'll pass it over to Camille. Commercial real 

estate is high on our list of areas that we're watching. 

Conditions are still challenging for essentially every 

segment of commercial real estate except for industrial.

One of the indicators that we look at is 

property prices. And, property prices are down around ten 
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percent from pre-pandemic levels. But, relative to what we 

saw in the Great Recession, things actually look better 

than that.

Prices during the Great Recession were down 

about 35 percent. So even in the hard hit retail and 

lodging sectors, prices are not down as far as they went in 

the Great Recession. So, I think that's important.

Of course, there is lower transaction volumes 

during the last year or so. We may have some uncertainty 

on these prices. But, so far, it doesn't look as bad as 

the Great Recession. So with that, I will turn it over to 

Camille to talk through some banking conditions and 

supervisory viewpoints.

MS. SCHMIDT: Alright, thank you, Shayna, and 

thanks, everyone, for the information you've provided 

today. It's been interesting. I'm just going to start 

expanding on some of the pandemic-related risk management 

trends that many of you have kind of alluded to.

When we look at institutions with layered risk 

or known exposures to the industries and economies most 

affected by the pandemic, our FDIC staff is recording that 

the overall risk profiles and asset quality risk profiles,

have declined slightly since this summer. However, case 
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managers and examiners are reporting an increase in watch 

list and criticized asset volumes at some of those 

institutions most impacted by the pandemic.

The most significant increases for those 

institutions under ten billion in total assets are in the 

New York and our San Francisco regions and the least are in 

the Kansas City region. At larger institutions, most of 

the increase in problem loans is in the special mention 

category. Institutions with total assets under 250 

million, which some of you talked about, and institutions 

in rural and micropolitan areas are reporting less adverse 

impact on watch lists and criticized asset volume than 

their larger metropolitan bank counterparts.

Bret and Kevin talked about loan accommodation 

levels declining, and we're seeing similarly a substantial 

decline over the course of the pandemic. And this is true 

across banks of all sizes, across all of the regions, and 

in all location types, whether it's a micropolitan, rural, 

or metropolitan area. The most common deferral extension 

periods remain short term. They're typically two to six 

months. And, the CRE and the C&I loan portfolios continue 

to have the most loan accommodation activity.

Commercial real estate is emerging as an 
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industry to watch closely when we look at the comments 

provided by examiners. In October, I talked about the 

supervisory recommendations that we're seeing in reports of 

exam. The areas reported most frequently as in need of 

improvement continue to be board/management oversight, 

portfolio sensitivity analysis, meaning less robust than it 

should be, and portfolio management areas. Those are the 

areas most in need of improvement. Credit underwriting, of 

course, is always on our radar. But, we are not seeing 

that garner many supervisory recommendations.

I want to talk a little bit about LIBOR 

transition readiness. I don't think I heard that mentioned 

much. But I'm mentioning it because I know the states have 

partnered with us here to gather some data, and we sure 

appreciate that.

The impact of the LIBOR transition is not equal 

across all banks. The largest, most internationally 

active, institutions have by far the greatest exposure to 

LIBOR, as we know. And, some of the regional banks have 

some very material exposure. But, most of the community 

banks that we've measured so far have far less exposure to 

LIBOR, with many of the community banks reporting no 

exposure or only minimal exposure.
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Overall, we're finding that most U.S. banks have 

completed an assessment to understand how the LIBOR 

transition will affect them. And those with significant 

exposure have a process or timeline to manage the 

transition. Many banks have made notable progress in the 

review for fallback language in their financial contracts.

Institutions do have more work to do towards 

selecting alternative reference rates for all their 

products, determining how the transition away from LIBOR 

will financially impact their institutions, and developing 

effective communication strategies.

And just to end on a high note, since Bret 

mentioned this too, we're seeing that the increase farm 

income has translated to an increase in farm loan repayment 

rates. And we've seen the past-due rates fall at ag banks, 

and that's one of the only loan categories that really saw 

a decrease in past dues this past quarter. With that, I'll 

wrap it up.

MS. KEA: I think we do have time for some 

questions if any of the members have questions that you 

would like to pose to Shayna or Camille. We'll take a few 

moments. I know that we are a little over time, but we 

have a strategy for getting back on time.
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You can use the raise your hand function, or you 

can just turn on your camera and unmute and jump right in,

if you have questions or comments. I'll give it a minute 

since I've noticed there is a delay.

(No audible response.)

MS. KEA: Okay. I think then this has been very 

interesting and very informative. And, let me thank you 

all for that great interactive discussion on state and 

national conditions. Very, very interesting.

What we will do now is take a break. I would 

like to shave some time off of the break time, and if we 

could just consider this a brief comfort break. If you 

could be back at about five minutes after 3:00.

And when we come back, I'll be introducing to 

you our new Chief Innovation Officer, and you don't want to 

miss that. So if you would be back just at about five 

minutes after 3:00 and take a very brief comfort break now. 

Thank you.

(Whereupon, the above-entitled matter went off 

the record at 2:54 p.m. and resumed at 3:05 p.m.)

MS. KEA: Well, hello, everyone, and welcome 

back. Well, the meeting has gotten off to a great start. 

Today, we're very, very fortunate to have FDIC's most 
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recently appointed Chief Innovation Officer, Sultan Meghji, 

with us.

Sultan is a recognized expert in financial 

technology. He just completed his first month with us here 

at the FDIC. And, I'm pleased to present him, as he will 

tell us a little bit about his vision for FinTech at the 

FDIC. Sultan, the floor is now yours.

MR. MEGHJI: Well, thank you so much. And allow

me to say for my first time being a part of this event, 

it's great. And, it's been fantastic to hear all the 

different voices from across the country.

As a Midwestern son and someone who got into 

banking right in the State of Missouri, it's great to see 

all of the different states represented here. I loved 

hearing everything you guys were talking about. And,

you'll hear some of the same things as I talk through what 

we're planning here at the FDIC.

I'll start by just saying I'm on day 32, and as 

the Chairman was reminding me this morning that it was my 

32nd day, I am sadly not going to announce any massive new 

policies or anything like that. But, I do have some good 

stuff that hopefully will resonate with all of you.

First, I wanted to talk a little bit about the 
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themes of innovation that we're looking at here. And,

they're some of the same things that you guys have already 

talked about today. So first, we're going to talk about 

inclusion.

We, as an industry, could really do a lot more 

there. We're spending a lot of time looking at ways where 

we can look at inclusion. And, I don't just mean in terms 

of operating processes or in the institutions, but also 

looking at things like the last mile in terms of how we 

help community banks across this country get that last 

mile, get the new customers, get the -- expand their 

existing customer base, look at new and different products 

and services that they could bring to market that allow 

them to really offer a broader set in this very competitive 

and very dynamic market.

The second, and I'm so happy to hear so many 

conversations about cybersecurity, but we're going to talk

about resilience. And, it isn't just the normal 

cybersecurity things, creating defensive technologies I 

heard earlier which was fantastic to hear, but also looking 

at existing technologies that are in place that we need to 

encourage and innovate around in order to make them more 

secure and talking about things like multi-factor 
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authentication, which allows for better user security. 

Making sure that all the data and information that all of 

these institutions have is encrypted, not just as it's 

sitting inside of the institution, but also as it moves 

back and forth across this ecosystem.

Also, we want to talk about engineering for 

resilience. What that means is that we need to engineer 

the next generation of technology. It's not just in terms 

of what we do at FDIC but also what others do in terms of 

the institutions all the way down to the consumer and the 

small businesses that make up Main Street. Make sure that 

they are engineered for resilience.

As we look back at the 20th century, so much of 

the economic power of this country was based on Main 

Street. That American competitiveness has been a core 

component of our nation's success. And as I look to what 

we should be doing next for the 21st century, I want to 

continue that. I want us to look at the 21st century as an 

even better place. And because of that, we need to make 

sure that we're the most resilient system out there.

Third is amplification. This is a challenge we 

have where so many organizations, especially the smaller 

ones that I do worry about becoming these digital have-nots 
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versus the digital haves of the larger institutions. I do 

worry that there's a lot of analog to digital 

transformation that's going on; and I worry we're going to 

lose people. I worry we're going to lose that ability for 

people to operate efficiently, for great bankers to be 

working with their communities and figuring out how to get 

that job done.

And so we're going to spend a lot of time

looking at ways to streamline everything from basic 

examination processes, and you heard the Chairman talk 

about the call reports, all the way through to larger 

systems in terms of how we operate at the FDIC. There's a 

tremendous amount that we can do there. And we've spent 

decades building many layers of technology and different 

cultures and different processes together.

And on the back end of that, we need to take a 

step back and look at the ways that we can make this 

overall system work more efficiently; and that the people 

are spending more time being the experts that they are and 

less time manhandling a spreadsheet or dealing with some 

sort of technical support issue. I did notice that we had 

one person who had a VPN issue. And, I think it makes the 

point exactly.
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There are a lot of different ways you can design 

a secure network. VPN is one way to do it. You can also 

do something like zero-trust networks, which probably 

would've alleviated the bandwidth constraint that he dealt 

with earlier.

And then finally is protecting the future. 

There are a lot of things that have been hitting my desk, 

everything from concerns about global competitiveness, to 

what quantum computing will mean, to the impact of recent 

hacking incidents, to the FinTech ecosystem, to digital 

assets and cryptocurrencies. And the banking system of 

today in a lot of ways looks quite a bit different than the 

banking system from 20 or 30 years ago.

There are some things that are exactly the same, 

but other ways that are quite different. And that

evolution, that change is not a once in a generation kind 

of thing. It's an ongoing set of changes.

And we need to be thinking five and ten years 

into the future. What does that look like? What does the 

banking system of 2031 actually look like? How many banks? 

What are the kinds of products and services? What are the 

ways that we as a nation are being globally competitive and 

economically dominant like we have been? And how does our 
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banking system support that and support the Main Street so 

that this is an equitable, inclusive, and diverse set of 

banking products and services it offers everyone in the 

market?

So amongst those four themes, that's great. 

That's a vision. That's me 32 days in, kind of sort of 

setting the table, if you will. On the back end of that, 

what are we actually going to do? What are we going to 

make executable?

And this is something that the Chairman has 

pushed me on to make actionable things happen very quickly. 

And so you're going to see a couple of things happen very 

quickly here. But, I can't talk about what we're doing 

next. But I'll talk about some of the things we've already 

done.

So first, let me talk about we put out an RFP 

around standards, and this is a critical thing. I've been 

in tech for almost 30 years. I go all the way back to the 

first web browser to age myself just a little bit.

And one of the ways that we made the web so 

dominant in the 1990s was by focusing on standards. And 

standards are critically important because it's not 

endorsing a vendor or endorsing a piece of technology. 
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It's endorsing a way of talking to each other. It's a way 

of endorsing how two organizations can talk to each other, 

and that's great. And then the market will do what the 

market does, and we build amazing technology around that.

And so we put out this RFI to propose a publicprivate standard setting organization. And this has turned 

into an amazing internal conversation for us. It's a 

voluntary program by which banks can -- if they choose to 

rely on this, could ease their due diligence, ease their 

party-vendor risk management.

And it would help alleviate a lot of the costs 

for newer entrants and non-regulated entities, so that they 

wouldn't have to do everything one-off, a one-off attempt 

to work through one vendor due diligence and then go off 

and do it a second time and go off and do it another time. 

That's a huge waste in terms of cost, in terms of time, and 

it also increases risk. And, to my previous point about 

resilience, it causes some issue with resilience.

We've gotten some wonderful constructive 

thoughts and feedbacks on that. And we're continuing to do 

a lot of great work on that. And, you'll hear more about 

that in the future.

It's also important to note that we have been 
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partnering with NIST, the National Institute of Standards 

and Technology, which is great at this. And if you look at 

the underlying standards to make the internet work, NIST 

has been in there from the beginning, so it's a great place 

for us to work.

We’ve also have been working with the other 

federal regulatory bodies like the OCC and the Federal 

Reserve. And we're really thinking about this in a rather 

out of the box solution. But, we want to be very 

thoughtful about this when we build this new way of 

thinking about things. And we're going to be looking to 

engage with everyone, including all the stakeholders 

listening to my voice right now, to ensure that we really 

build something that's massively valuable for everyone and 

really moves the needle on this.

Just an aside, you'll hear me say the phrase, 

move the needle. And this is something that I actually 

stole from the Banking Commissioner of the State of 

Missouri at the time. It's a guy named Lee Keith. He's a 

good friend of mine, and I just love that expression. I 

think it fits perfectly with what we're trying to 

accomplish here.

Second thing I want to talk about that we've 
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been doing already is our rapid-phase prototyping project. 

This is a really cool way for us to reach out to the market 

and say, “hey, what are your ideas for how we can do things 

better?” And, it was fantastic.

In the initial submissions, we got over 30 of 

them from a variety of institutions, large and small, 

making up every aspect of American business, came to us 

with all sorts of amazing ideas. And we worked through a 

really great process, and we've been working them through 

this multi-phased approach. Right now, we're in phase 

three, a very cost effective program for us, which is 

great.

And we've gotten to about 11. I think it's 

officially still organizations that are working through 

this rapid-phase prototyping project. And at the end of 

it, we're going to have 11 fundamentally useful pieces of 

technology.

To give you an example of how this isn't exactly 

the old way of doing things. The first request for people 

to participate was in August of last year. And now it's 

roughly just slightly more than six months later and we're 

just a few weeks away from getting some of these file 

reports. It's a huge win for us and an absolutely 
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fantastic thing. I should, of course, disclose that one 

entrant I'm not allowed to talk to because I have a 

previous association with them.

Okay. So now let's talk about the future. 

You're going to hear us talk about a couple of different 

ways of doing things. But first, I wanted to talk about 

what we call tech sprints.

These are ways -- these are programs by which we 

take a basic problem and we open it to the market and say, 

here, come to us with your ideas and your thoughts. 

Sometimes we'll go to banks. Sometimes we'll just go to 

the market, maybe tech companies. In some cases, it could 

be none of those.

And the idea is to say, listen, we have a 

problem and we want to get the best and brightest and the 

most interesting thinkers involved. And in a lot of cases, 

that turns into something called a tech sprint. That's 

usually kind of a three-month program where we position a 

question. The market comes in and says, here's our 

proposal for it. We work through them over a certain 

amount of time, and then we get a result. And, that result 

is fantastic.

And every time we do one of these, you'll get a 
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nice big announcement on the back end where we talk about 

what we're doing because the transparency in this space is 

really useful, especially as we look to incentivize 

organizations across the ecosystem to participate more 

fully in this process.

In parallel with tech sprints, when it isn't so 

well defined of an issue, we do these kind of research 

collaborations. And, we're working with a number of 

different universities from some of the big names you would 

expect to historically Black colleges and universities, to 

help us think about things from an almost a primary 

research perspective. It's sometimes, some of these things 

are happening so quickly and so fast and the market is 

evolving that we just need to get some really thoughtful 

people on the research side to help us.

Another thing we're talking about is related to 

highlighting programs. Back a long time ago, when 

government contracting was the biggest boondoggle of 

boondoggles, you would have these big five-year, 100 

million dollar projects. And, that's great. That's back 

when people would buy mainframes and you would never get 

fired for hiring one of those companies, the old 

expression.
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That's now how technology is acquired anymore. 

Technology is acquired as a service. It's acquired as a 

value you get out of it, and it's not one big contract. 

It's lots of smaller to mid-size contracts.

The era of the one MSA to rule them all kind of 

environment is ending very quickly, the seven-year 

contracts and all that kind of stuff. This is much more 

about continual value creation. So, that's how we're 

moving, how we think about the world, and how we want the 

rest of the world to look at that as well.

And so we're going to continue to do more and 

more things that allows us to just slowly walk through and 

chip away at what we call technical debt in the 

environment. When you go down the programs across the four 

themes I talked about, you'll be getting an entirely 

different cadence of activity from us. You'll be hearing 

about things weekly, not annually. You'll be hearing us 

solve very specific tactical pain points.

You'll hear more about it, probably to the point 

you'll be annoyed hearing from me. But, I'll just say that 

one of the things that makes an effective innovation 

program in an organization like this is for the people who 

sit in chairs like mine with teams like mine to be 
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listening to everybody out there and to hear that often. 

One of the very first things I did was create an email for 

people to just suggest anything and reach out. It's called 

innovation@fdic.gov, and it's a great way for just anybody 

to reach in to us and say something or suggest something. 

We really need to get better at that and need to get that 

iteration moving much more quickly.

So with that, I will just stop for a second and 

say that while we have a lot of other things going -- I 

have a lot of hiring to do. I'm only on day 32. I'm sorry

I don't have more to report. I am happy to take a few 

questions if there are any questions. I'm saying this now 

so if people want to raise their hands, we can get to that 

before I finish speaking without disrupting the clock, 

which I'm paying very close attention to.

I'll highlight two specific areas that you're 

going to hear us speak a lot about more tangibly, and the 

first is around data. We have a tremendous amount of data 

in this market and some of it we use very well and very 

effectively; and other parts of it we don't use very well 

and very effectively. And as we change the nature of the 

financial products and services being offered in this 

market, we're going to need different information. We're 
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going to need different things.

Having loans that have the geographic 

information of where that asset is, is a critical 

component. That's something that we really need to be able 

to understand things. And as we move to environments where 

we're trying to remove friction, the more data we have and 

the earlier we have it is more important.

We also are looking at things like how to 

consider, for example, agricultural data in some of our 

examination discussions, where to look at climate data, 

where to look at health care data. We have these 

integrated economies now, and it's hard to just have a 

little slice of the data and try to understand the full 

breadth of it, especially in as dynamic an economic 

environment as we're currently in, whether it continues to 

go well or maybe doesn't, the fact is that that cadence and

amount of data is going to just continue to keep growing. 

And, we have to get comfortable with that.

The last point I'll make before I'll look at any 

questions is to specifically talk about cybersecurity. As 

a market, I don't think we can put too much attention into 

this (audio interference) whether they are state sponsored 

or not.
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Ransomware, I was excited to hear a couple of 

people talk about ransomware earlier in the program. Let

me just say when ransomware as a service became a thing a 

while back, it really raised the eyebrows for me. And, I'm 

really hoping that as a market, we get very thoughtful 

about getting cybersecurity funded correctly, executed 

correctly, communicated correctly across this entire 

community of institutions, regulatory banking and 

individual.

The fact is we're playing a lot of catch up in 

cybersecurity, and we can't invest too much money in. As

we look at making sure that our consumers are taken care 

of, our small businesses are taken care of, our homes are 

taken care of, we really have to make sure we're putting a 

lot of effort in.

And raising the awareness is one thing, but also 

educating everyone is a big piece of this. In a separate 

structure, there's been some policy work done that 

specifically looks at how we can make sure that everybody 

from the board of directors, to the C suite, to the

consumers and the small business owners are all getting 

lifted up in terms of their understanding about what they 

should be thinking about from a cybersecurity perspective. 
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And, we just can't put too much energy into that.

So with that, I will see if there are any hands 

up. And, if not, I will just yield a minute or two early 

which I hope no one minds and go from there.

MS. KEA: Let's just take a moment, Sultan, 

because of that delay that we've seen earlier today, to see 

if there are any questions, hands raised. Questions or 

comments?

(No audible response.)

MS. KEA: If not, I think everyone knows where 

to find you. And I suspect that you will probably be 

getting some emails or calls fairly soon. So, we thank you 

so very much for providing those comments to the group this 

afternoon. Thank you.

MR. MEGHJI: Thank you.

MS. KEA: At this point, I would like to move on 

in the agenda. And we have John Anderlik who is our 

Assistant Director of National and Regional Risk Analysis 

in our Division of Insurance and Research. And John is 

going to share some research update, which focuses on the 

FDIC's community bank study and agricultural lending. So 

at this point, John, I will turn it over to you.

MR. ANDERLIK: Thanks, Arleas. It's my pleasure 
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to be speaking to you today about two recent research 

projects in the Division of Insurance and Research. As

Arleas said, the community banking study, which we 

published online in December, and the FDIC quarterly paper 

on agriculture, which we published earlier this week. 

Today, I'll cover both of these topics at a fairly high 

level. Let's turn to the first slide.

I'll start with the community banking study. 

The FDIC's first community banking study was published in 

2012. That study had two primary goals: to define 

community banks beyond the simple asset size, such as a 

billion dollars, and to compare the characteristics and 

performance of community banks with those of non-community 

banks.

That paper had a long study period, from 1984 

through year-end 2011. This study builds on several of the 

themes from the original study, bringing them forward 

through year-end 2019. It also includes two issues that 

were not covered in the original study: regulatory change 

and technology and their effects on community banks.

I'm going to take a quick walk through each of 

the study's six chapters today. One thing before we get to 

Chapter 1, though the study goes through year-end 2019, we 
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felt it would be remiss if we didn't mention 2020's 

pandemic. So, each chapter includes an inset box that 

discusses the pandemic and its community bank effects on 

the issues studied. Next slide.

Chapter 1 covers the financial performance of 

community banks from 2012 through 2019. Overall, community 

banks have performed pretty well. We begin the chapter by 

showing that community banks have reported steadily 

increasing pre-tax ROAs since the conclusion of the prior 

study, reaching 1.44 percent in 2019, up from 1.05 percent 

in 2012.

However, similar to the conclusion that was 

reached in the original study, non-community banks continue 

to report higher earnings overall than community banks, 

primarily because non-community banks have a large 

advantage in generating non-interest income. But, the gap 

in pre-tax ROAs narrowed to just 22 basis points by yearend 2019, down from 43 basis points in 2012. Community 

banks do have two advantages of financial performance over 

non-community banks.

First is higher net interest margins. As you 

can see from the chart, community banks have had a NIM 

advantage over non-community banks since 2010. And second,
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is in credit quality as measured by credit losses. The 

full year charge-off rate reported by community banks 

reached a post-crisis low of 0.13 percent in 2019, which 

was 45 basis points below the rate reported by noncommunity banks. Next slide.

Chapter 2 focuses on the structure of community 

banks. Consolidation continued between 2012 and 2019, with 

non-community banks consolidating at a faster rate than 

community banks. Over the recent time frame, consolidation 

was led by voluntary mergers between unaffiliated 

institutions.

Two differences stand out in the examination of 

consolidation trends in this study versus that of the prior 

study. First, from 2012 to 2019, the number of new banks 

formed each year declined to post-1984 historic lows. 

Second, with newer and fewer institutions to replace those 

that were acquired or closed, the rate of net consolidation 

increased from 3.2 percent annually, from 1984 through 

2011, to 4.3 percent, between 2012 and 2019.

The chart shows that over two-thirds of the 

community banks that closed between 2012 and 2019, whether 

because of merger, failure, or other voluntary closing, did 

so because they were acquired by another community bank. 
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The smallest community banks, those with under $100 million 

in assets, were highly likely to stop operating because 

they were acquired by another community bank. But even 

among community banks with one to ten billion dollars in 

assets, nearly one out of every five that ceased operations 

did so because they were acquired by another community 

bank. Let's go to the next slide.

Chapter 3 examines demographic change. This is 

an important issue to assess because as demographics 

change, community banks see changes in their client bases 

and loan demand. The two major demographic factors 

considered in this study are median age and net migration 

flows. For each of these metrics, we looked at counties in 

the highest and lowest quartiles for each metric.

The map shows those counties that were in either 

the highest or lowest quartiles for both measures. Dark 

blue counties had the youngest median ages and the highest 

net population inflows. These counties tend to be located 

in metro areas.

Our study found that community banks 

headquartered in such counties, experienced faster asset 

loan growth rates, were more profitable, and had larger 

shares of business loans than other community banks. At 
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the other end of the spectrum, the dark gold counties were 

in the oldest quartile and had the lowest net inflows, 

actually net outflows of about 0.4 percent per year. These 

counties tend to be rural.

Community banks headquartered in these areas 

grow more slowly and have lower commercial lending 

portfolios. They also have higher deposit to asset ratios. 

The chapter also has a large inset box on rural 

depopulation, which is a key topic for the dark gold 

counties. The FDIC has published two papers on that topic 

since 2004. Next slide.

Chapter 4 discusses three notable lending 

strengths of community banks. At year-end 2019, community 

banks in aggregate held small shares of the banking 

industry's assets and loans, just 12 percent of total 

industry assets and 15 percent of total industry loans. 

Yet community banks are key providers of CRE loans, small 

business loans, and agricultural loans.

The next three slides cover these areas. We'll 

start with CRE. Community banks hold 30 percent of banking 

industry CRE loans. The chart shows how community bank CRE 

lending overall is outsized compared to their assets.

CRE lending is widely distributed among 
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community banks, with almost all of them holding at least 

some amount of CRE loans, and many holding substantial 

portfolios. Community banks are active lenders to a wide 

range of industries, including industrial, retail, and 

hotels. And, community bank multi-family lending grew in 

the years between 2011 and 2019.

In addition to lending across industry types, 

community banks have been active CRE lenders across all 

sizes of markets. In 2019, community banks headquartered 

in rural areas -- I'm sorry, in rural and small metro areas 

held more than two-thirds of CRE loans held by all banks 

headquartered in those smaller geographic areas. In larger 

metro areas, community banks' share of loans were smaller,

but still quite material.

One final note on this topic, the share of 

community banks that the FDIC considers CRE specialists 

increased over the study period. These CRE specialists are 

particularly important providers of CRE loans in small 

communities. Let's go to the next slide.

The second area of lending strength for 

community banks is small business lending. At year-end 

2019, community banks held 36 percent of the banking 

industry's small business loans. During the period covered 
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by the study, community banks' share of small business 

loans declined per call report data.

You can see in the chart that non-community 

banks grew their business loans across loan sizes while 

community banks business lending remained flat across the 

lending spectrum. But, call reports don't tell the whole 

story. Call reports are based on the size of the loan, not 

the size of the borrower.

In response to the 2018 FDIC small business 

lending survey, many bankers said their C&I loans were 

extended predominately to small businesses regardless of 

the size of the loans. This supports the widely held 

belief that at community banks’ many C&I loans above a 

million dollars are, in fact, loans to small businesses. 

Another data source that supports that community 

banks continue to be active lenders to small businesses is 

the SBA. The SBA's 7(a) program guarantees loans originated 

up to five million dollars. Community banks' share of loan 

originations increased with 38 percent of total

originations in 2012, to 46 percent in 2019. And many of 

those loans were above the one million dollar call report 

thresholds. Next slide, please.

The third area of lending strength for community 
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banks is agricultural lending. Community banks play a key 

role in financing the U.S. agricultural sector, funding 

roughly 31 percent of total U.S. farm sector debt in 2019. 

About half of community bank agricultural lending is held 

by community bank agricultural specialists, and we focus 

on these institutions in the chapter. These banks tend to 

be small and rural, with median asset sizes of just 128 

million dollars. Seventy-five percent have total assets of 

less than 250 million.

An important point we make in this chapter is 

that community bank agricultural specialists have shown a 

strong commitment to such lending over the years. The 

chart shows that most agricultural specialists have a long 

history in that role. Of the institutions that were in 

operation from January 1990 through year-end 2019, over 55 

percent of them were classified as an agricultural 

specialist in at least 28 of the 30 years.

In addition, agricultural specialists have been 

committed to lending to farmers through cycles in the 

agricultural sector. From first quarter 2000 through 

fourth quarter 2019, in only two quarters did community 

bank agricultural specialists as a group see an annual 

decline in aggregate agricultural production loans. And,

they never reported a decline in aggregate farmland secure 
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loans over that 20-year period. Next slide.

We'll now turn to Chapter 5 on regulatory 

change. The chapter describes the regulatory changes from 

the onset of the financial crisis in 2008 through 2019,

that were relevant to community banks and the effects the 

changes may have had on those banks. As shown in Chapter 

1, community banks in aggregate have been performing well, 

but it is often said that regulatory compliance may be 

relatively more expensive for smaller institutions.

In that respect, three issues stand out. First, 

running a small residential loan function appears to be 

becoming less economical over time. The chart shows that 

the percentage of small mortgage lenders with sustained 

reductions in balance sheet mortgages has been increasing, 

especially since the crisis.

The chapter examines this issue under three 

different definitions of a small mortgage lender. The two 

other trends, the record pace at which community banks have 

been edging the industry since 2014, and what appears to be 

the increasing target asset size of new small banks based 

on their initial equity, are consistent with the presence 

of scale economies. In principle, the need for a 

compliance function is a potential source of scale 

economies.
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Now the study makes it clear that policy 

benefits of regulations and how well they are achieved are 

beyond the scope of the analysis, so nothing in the chapter 

should be viewed as a criticism of the regulations. The 

bottom line of the chapter is support for the idea of 

achieving regulatory goals while accommodating as 

appropriate the business models of community banks. Next 

slide.

The last chapter in the study is on community 

banks' use of technology. Community banks have adopted 

different technologies, including newer technologies such 

as mobile banking, automated loan underwriting, and online 

loan applications, at different rates. According to 

research and community banks' own descriptions of the 

opportunities and challenges, factors such as banks' 

characteristics, the economic and competitive environment, 

and the attitudes and expectations of bank leadership all 

play an important role in community banks' adoption of new 

technologies.

The chapter examines how technology haves, or 

those with a high adoption of technology, differed from 

have-nots, or those with low adoption. The purpose was to 

shed light on potential motivators, barriers, and outcomes 
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associated with technology adoption. The study uses the 

results from the 2019 CSBS annual community bank survey.

Survey responses suggest that cost is a 

significant challenge to technology adoption. In fact, 

almost half of community banks use the word cost at least 

once when describing their challenges. As the chart shows, 

larger community banks are more likely to have adopted 

technology than smaller banks.

Just 6 percent of community banks with less than 

100 million dollars in assets, are considered high adopters 

of technology in the study, while 70 percent of community 

banks with assets over a billion dollars were high 

adopters. In addition, relative to low adopting banks, 

high adopting banks had a higher loan to assets ratio, had 

faster loan and deposit growth, faced greater competition 

within their local markets, and had more positive outlooks 

on profitability, business conditions, and regulatory 

burdens. Next slide, please.

Let's turn to the FDIC Quarterly article on 

agriculture. As I said, it was published earlier this 

week. In the paper, we take an extended look at the U.S. 

agricultural sector and the condition of farm banks. In 

the first half of the paper, we examine the unusually long 
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boom in farm incomes from 2004 through 2013, the period 

following the boom from 2014 through 2019, and then the 

turbulent 2020 that ended up as a positive for the sector.

In this analysis, we focus on 12 states in the 

Upper Midwest where everything was magnified. The farm 

income boom was more substantial in these states as was the

downturn that followed the boom. In the second half of the 

paper, we examine how the changes in the agricultural 

sector affected farm bank conditions, how banks responded, 

especially during the boom years, and challenges that 

persist. Next slide, please.

We'll start with the chart that shows inflationadjusted U.S. net farm income going all the way back to 

1960. The chart shows the two income boom periods from 

1972 through 1975, and then from 2004 through 2013. The 

recent boom didn't reach the peak of 1973's income level, 

but it was far longer.

During that ten-year period, U.S. net farm 

income averaged 102 billion dollars per year, well above 

the 77 billion annual dollar average from 1987 through 

2003. During this period, the sector saw substantial price 

increases across many important agricultural commodities, 

including corn, soybeans, wheat, cattle, dairy, and hogs. 
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Production expenses for things such as fertilizer and seed 

increased during this time, and farmland became more 

expensive to rent. But, commodity prices rose much more 

than expenses, leading to the higher net farm incomes.

The long period of prosperity ended in 2014 as 

strong returns incentivized heavy growing in the U.S. and 

around the globe, pressuring commodity prices. By 2016, 

average annual prices farmers received for corn and wheat 

were down nearly 50 percent from their peaks. And prices 

for hogs, milk, and soybeans were down by a third. 

Production expenses declined during this period, but 

slowly.

The result was a large drop in farm incomes from 

those achieved during the boom. By 2019, the sector had 

stabilized, though at a somewhat weak level. Then 2020 was 

roiled by the pandemic, which caused significant 

disruptions to food demand and supply chains.

Commodity prices, especially for corn, plummeted 

in April and May. But, record governmental support 

combined with late in the year recoveries and exports at 

commodity prices, helped the sector achieve overall strong 

incomes in 2020. And we heard this from some of the state 

bank Commissioners earlier. Next slide, please.
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Let's turn now to farmland values. Farmland 

values represent the largest portion of most farmers' 

assets and net worth. You see in the chart the dramatic 

rise in farmland prices in the 1970s that proceeded the 

agricultural crisis of the 1980s. Farmland prices dropped 

precipitously during the crisis, and did not begin to grow 

again until the mid-1990s.

During the farm income boom that began in 2004, 

farmland prices grew to record levels. In contrast to the 

farmland prices of the 1970s, farmland prices did not fall 

when incomes fell beginning in 2014. The combination of 

low interest rates, tight supplies, and steady demand for 

farmland has kept overall farmland values relatively flat 

since the farm income boom ended.

There was another big difference in the farmland 

price boom of the 1970s and the recent boom. In the 1970s, 

the price gains were widespread. Farmland values in 20 

states at least doubled and another 22 states saw prices go 

up at least 50 percent. But in the recent boom, farmland 

price increases were more isolated.

Though farmland prices rose 81 percent overall 

between 2005 and 2015, less than half of all states 

experienced a run up of more than 50 percent. This time, 
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only eight states saw farmland prices more than double 

during the boom; and all eight of these states are what we 

call the Upper Midwest in our paper. I'll get into the 

Upper Midwest more in the next slide, but it's the 

combination of three USDA economic regions: the Corn Belt, 

Lake States, and the Northern Plains. Next slide, please.

In this chart, we focus on the Upper Midwest to 

contrast it with the farm income performance of the other 

USDA economic regions. This chart shows net farm incomes 

indexed so that the 1987 to 2003 average is 100. The dark 

blue line represents the Upper Midwest. The dotted blue 

line is the aggregate of all other USDA economic regions, 

and the shaded area marks the range of the other regions.

In the early 2000s when overall U.S. 

agricultural conditions were weak, Upper Midwest states had 

among the lowest net incomes of the USDA regions. But then

during the farm income boom, incomes in the Upper Midwest 

quickly rose and outperformed all other regions during that 

period. When the farm income boom ended, incomes in the 

Upper Midwest swung again, this time downward to among the 

lowest among the USDA regions.

As the slide shows, incomes in the Upper Midwest 

peaked in 2011 and 2013, in which aggregate income was 
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nearly two and a half times its long-term pre-boom average. 

Incomes in the Upper Midwest then fell down more than twothirds to reach their bottom in 2016. The swings in income 

in the Upper Midwest track the swings in prices of major 

agricultural commodities during that time.

Corn and soybeans generate the largest share of 

cash receipts in these 12 states, and hog and cattle 

production was also important. Prices for all these 

commodities increased significantly during the farm income 

boom and then fell sharply when it ended. Next slide, 

please.

In the paper, we then turn to the condition of

farm banks through the farm income boom and subsequent 

downturn. The FDIC has long defined farm banks as banks 

with 25 percent or more of total loans concentrated in 

agriculture. As of year-end 2020, there were 1,163 farm 

banks in the country, representing about a quarter of all 

commercial banks.

The map shows where the nation's farm banks are 

located and also that the majority, more than 78 percent, 

are headquartered in the Upper Midwest. It's not 

surprising that farm banks performed very well during the 

farm income boom. You may have noticed that the dates of 
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the boom ran over the Great Recession.

Since the U.S. agricultural sector was so strong 

during that time, most farm banks continued to report 

strong earnings and capital levels, and low levels of pastdue loans. An area the farm banks found challenging during 

the boom was loan growth. Since the sector was so flushed 

with cash, farmers began to pay down debt or even selffinance their operations rather than taking out bank loans. 

Banks also had to deal with rising deposit balances during 

this time. Next slide, please.

One point we've highlighted in the paper was how 

different the behavior of farm bankers was during the 

recent farm income boom compared to the 1970s boom. In the 

1970s, farm bankers responded to surging farmland prices by 

dramatically increasing lending to fund expanding farms. 

You can see that in the left panel.

Farm banks increased agricultural loan 

concentrations in tandem with increases in farmland values 

throughout most of the 1970s. It wasn't until 1979, after 

several years of lower farm incomes and on the cusp of the 

agricultural crisis, that banks reined in their 

agricultural lending. Contrast that to the more recent 

period shown in the right panel.
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The median farm bank agricultural loan 

concentration ratio, which was already lower than before 

the boom of 1970s, remained low even as farmland values 

soared. This was true even in the Upper Midwest where 

farmland values rose higher and peaked later. Part of this 

more muted lending reaction to the farm income boom and 

rising farmland values was because many farmers were selffinancing as I mentioned earlier.

But, farm bankers were also more cautious, not 

wanting to repeat the mistakes made a few decades earlier. 

This sentiment has been a common theme from farm banks at 

outreach meetings conducted by the FDIC over the past 15 

years. Next slide, please.

My final slide of the afternoon has to do with 

credit conditions of farm banks. The left slide shows the 

past-due and nonaccrual ratios for farm banks in the Upper 

Midwest and the rest of the country. The solid lines are 

the 90th percentiles for both sets of banks and the dotted 

lines are the medians.

The right chart is similar, but shows the net 

charge off rate. You can see from the charts that credit 

conditions improved substantially during the two decades 

following the agricultural crisis. Then the farm income 
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boom drove delinquencies and charge off measures to 

historic lows.

Though median delinquencies and charge offs have 

edged higher since 2014, they generally remain at or below 

a level seen immediately before the boom. Where we have 

seen increases is in the tale of agricultural banks. The 

first quarter 2020 90th percentile delinquency rate in the 

Upper Midwest was the highest first quarter rate we've seen 

since 2003.

FDIC examiners also note increasing levels of 

carryover debt of farm banks in recent years. Overall, 

though, farm bank credit quality has been resilient since 

the farm income boom ended. I'll conclude my agricultural 

remarks with this. Even though the second half of the 2020 

and the USDA's 2021 outlook are reasons to be optimistic 

about the sector, we do still see some challenges for 

borrowers.

For one, overall debt levels are very high, but 

debt service so far has been moderated by low interest 

rates. In addition, a subset of borrowers, what the USDA 

refer to as highly leveraged borrowers, remains at risk. 

And it's too early to tell if a strong 2020 will be enough 

to bring those farmers back to a solid financial position.
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And with that, it looks like we are back on 

track. If you have questions, I certainly welcome 

questions. Please email me. My name is on the agenda. My 

email is just my first initial J, my last name @fdic.gov. 

I look forward to chatting with some of you. Thanks.

MS. KEA: John, thank you so very much and thank 

you for having provided your report to all of our members. 

I suspect that they will want to look in at it a little 

closer and then they will be emailing you to ask questions 

about that.

MR. ANDERLIK: Sounds good.

MS. KEA: So thank you, again. Next we have 

Doreen Eberley, our Director of the Division of Risk 

Management, and Mark Pearce, Director of the Division of 

Depositor and Consumer Protection. They are going to lead 

a discussion with the Committee on state and federal 

coordination. Doreen and Mark are joined by John Vogel, 

Deputy Director of Operations, Rae-Ann Miller, Senior 

Deputy Director of Supervisory Examinations, and then 

Martin Henning, Deputy Director of Operational Risk. At

this point, I'd like to turn it over to Doreen and Mark and 

their team.

MS. EBERLEY: Thanks, Arleas, and good 
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afternoon, everybody. It's been a pleasure to be a part of 

this today and to hear all the remarks this morning. 

Really enjoyed it. I'm going to kick things off, and Mark 

will close us out.

The first thing I really wanted to do today was 

recognize our partnership in the Alternating Examination 

Program. Many of you talked this morning about challenges, 

but that everybody met their examination obligations during 

the year on both sides of the house. So, all of the states 

and the FDIC each met our obligations under the alternating 

program, really in spite of the challenges of the pandemic 

and some pauses that we offered bankers at the beginning of 

the pandemic that we talked about last time to give them 

some time to adjust and make whatever arrangements they 

needed to make with their own staff to keep their staff 

safe and to accommodate their customers.

We've heard mostly positive comments from the 

industry regarding the move to remote examinations. Some 

of you mentioned that there are some institutions that are 

very eager for us to come back on site. We've had a few 

challenges with banks that don't image loan files. And,

we've taken some steps to mitigate this issue such as 

loaning scanners to those institutions to help them prepare 
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the information to send in to us.

So we're interested in having some time today to 

talk about what's worked well, what else could be improved, 

and any best practices that we have to share. For example, 

in training new examiners who haven't been to a bank, and 

that was mentioned in the morning session as well. I 

really do appreciate the comments shared thus far, and I 

hope that we can have some additional dialogue on this 

topic. John Vogel will give a little bit of a background 

about our remote training efforts; and what's happened 

since the last time that we met.

We also wanted to spend some time talking about 

some other opportunities to partner in modernizing our 

examination tools and processes. Rae-Ann will make some 

introductory comments for that topic. And then finally, 

another way that we partner is in our supervision of 

service providers that aren't covered in our Alternating 

Examination Program for financial institutions, but in a 

separate program, and also in sharing information when 

things go wrong at an entity we supervise.

And many of you mentioned this as an area of 

importance in your earlier remarks as well, an area of 

focus. So Martin will talk about some advancements on both 
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of these fronts. So, we'll run through those comments and 

then we'll turn the program over to Mark and have some 

conversation. John, can I turn it over to you to talk a 

little bit about some of our advancements on the training 

front, please?

MR. VOGEL: Thanks, Doreen. I appreciate it. 

So since October, we have had some developments in our 

training area. I wanted to mention a little bit of what I 

talked about last October and just highlight our ability to 

convert the core schools.

So, we converted 12 classes that are integral to 

our training and development for both the Division of 

Depositor and Consumer Protection and for RMS. So we

undertook that effort soon after the pandemic began. And,

we successfully made the conversion, and we were able to 

deliver 65 remote sessions to over 900 folks at the FDIC 

and 260 individuals from the state. That was from July 

through December. For 2021, we have another 53 remote 

sessions planned for 780 FDIC staff and another 241 state 

participants.

So far, it is going well. I will tell you that 

recently the FDIC decided that we won't have any in-person 

classroom delivery for the remainder of 2021. So we'll
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continue with our remote delivery efforts for, of course, 

both FDIC and state participants.

Similarly, the FFIEC undertook a vote at its 

Task Force on Examiner Education earlier this week to also 

suspend any in-person classroom delivery for 2021. And,

the FFIEC staff is working to continue its remote course 

delivery. And they're also working to convert additional 

programs. I will say that at the FDIC, the converting of 

the programs does allow a wider audience to attend the 

classes. So, we have seen some benefit from that.

When we talked about our training program at 

both the FDIC and I believe it's true at the state, it's 

largely an apprenticeship program. So, the benefits of 

working with an individual experienced in the exam work is 

critical to our training success. And I will tell you that 

the regions have been extremely creative in making sure 

that our pre-commissioned examiners get the training they 

need to meet their benchmarks.

We've done things like shadow exams where two 

discrete groups look at the same set of data. One is doing 

the actual exam, one is doing what we're calling a shadow 

exam. We've been able to partner and provide coaches and 

assign coaches to our pre-commissioned examiners. We've 
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also been able to assign more individuals on the exam for 

training purposes than we would traditionally be able to at 

institutions, making sure that we're not putting an undue 

burden on the financial institution.

I do encourage you to reach out to your local 

FDIC office to talk about best practices for training. 

They've been doing a great job, and I'm sure they're more 

than happy, if they haven't done so already, to talk with 

you about it. Doreen, should I turn it back to you or over 

to Rae-Ann?

MS. EBERLEY: Yeah, we'll go ahead and move over 

to Rae-Ann.

MS. MILLER: Thanks very much, Doreen, and 

thanks all. I really enjoyed your remarks this morning. 

Great to see your faces.

So Doreen asked me to talk very briefly about 

some of our examination processes. And we really did take 

a holistic look at our examination processes coming out of 

EGPRA, believe it or not, which feels like it's so long 

ago. But, we're constantly looking at processes and 

looking at ways to improve our supervisory activities.

And so, we started with reviewing our 

examination planning processes and standardizing those 
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processes across the region. And I am not the IT person. 

That person works for John. But, it does involve a lot of 

technological solutions and improvements.

And so a few of the things that we did was first 

change the policy, I'd say, on the paper. And so we had a 

very brief instruction about letting the institution know 

at least two weeks before the examination that you would be 

starting. And so, we backed that time frame up to 90 days 

and created a process and cadence of communications with 

the institution as well as a way to describe and discuss 

the profile of that institution with the institution; and 

added these instructions to our manual, and so kind of a 

standardization of the planning process nationally and 

backing that up.

Following that, we were tackling an issue about 

inconsistency with work programs, with documentation. 

There were a series of regional and sometimes even local 

checklists about exams. And so we had been planning prior 

to the pandemic to work on standardizing those processes 

and then moved to adopting the standardization of the ED

module core analysis decision factors to standardize those 

processes.

So now, across the country, the documentation 
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standard that a full scope examination has been completed 

is whether you can complete -- and to the extent that you 

can complete the core analysis decision factors that relate 

to what we call the primary ED modules. And as you know, 

the primary modules relate to the CAMELS factors.

So we view this -- and again, sort of I'm the 

policy person, right. So, we view this policy and this 

standardization as really a step towards moving to a 

business process driven way to conduct -- plan the exam, 

conduct the exam, and finish the report of examination. We 

kind of call it the end-to-end process versus moving in and 

out of Word and ETS and the different systems that we 

currently use.

And so we're happy to be working with the states 

on this and with the fed. We plan to use the Supervision 

Processes Committee, the SPC, to talk through all these 

issues. We internally have moved -- especially during this 

pandemic -- to a tool, a collaboration tool that was 

already available to us to try and do our work a little bit 

better.

So we look at that and really all of these 

policy steps as sort of incremental tools to the one day 

that we could kind of get to this, and hopefully not in a
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too distant future, we can get to this end-to-end system,

which will be much more efficient. And I think it was 

Sultan that talked about examining the bank versus worrying 

about entries onto a system. And, that's what we want our 

examiners to do.

And then on the back end, when you have 

standardization, it's much easier to use some of these 

tools that can look at unstructured data and other things 

to sort of search on a national basis for trends and other 

issues like that. So I'll stop there, Doreen, and I guess 

we turn it back to you at this point.

MS. EBERLEY: Yep, and so then we can move to 

Martin to talk about our other area of coordination with 

significant -- excuse me, significant service provider 

supervision. Lots of S's all in a row there. And also how 

we coordinate when something happens, when there's an 

incident at an institution. Martin?

MR. HENNING: Thanks, Doreen. As Doreen said, 

my name is Martin Henning, and I'm responsible for the 

Operational Risk Supervision Program. I heard comments from 

at least Commissioners Gallagher, Cooper, and Grace 

regarding IT and more specifically cybersecurity risk. The 

FDIC continues to devote significant resources to IT and 
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cybersecurity supervisory activities; and are continuously 

improving the techniques we use to understand risks and 

resilience levels. And, Sultan addressed our supervisory 

strategies.

There's a history of the FDIC and other federal 

regulators collaborating with states in our examinations 

event services. I looked up before the meeting to ensure 

that's continued recently and it has. I saw, for example, 

that Wisconsin, California, and Missouri have participated 

in 2019 and 2020 examinations of service providers.

And we recently refined our collaboration 

process. And I'm encouraged to see just recently the 

states of New York and Texas, Wisconsin, North Dakota, 

Idaho, and Indiana either continuing to express an interest 

in participating or expressing a new desire to collaborate. 

So, we appreciate that. There's certainly, as has already 

been mentioned, a lot of work to do there.

I want to say a special thanks to Director Tom 

Fite who has been working closely with the FDIC and the 

other federal regulators over the last year to refine our 

exam collaboration processes. We've taken some really good 

steps forward. I'm excited to see what they produce.

As Doreen said, in addition to collaborating on 
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examinations, it's critical for us to collaborate and 

communicate well when there are incidents or, this has been 

the case recently, material cyber threats and 

vulnerabilities identified. Of course, there's been the 

supply chain attacks discovered in December of last year 

and more recently the email server software vulnerabilities 

that have been discovered.

I want to point out that the FFIEC's 

Cybersecurity and Critical Infrastructure Working Group is 

designed to share relevant information when there are 

incidents. That group created protocols for communicating 

that are primarily based on the severity of the incident at 

hand. And I also want to call out and thank the states of 

Massachusetts and Texas who have representatives on that 

group. They participate in that working group routinely 

and help us get information into the hands of other states 

that have a need to know when something happens.

We've also seen improvement in cybersecurity 

coordination through the Financial and Banking Information 

Infrastructure Committee, FBIIC, led by the Department of 

Treasury. Some of the folks on this call participate in 

that as well. That's continuing to mature.

And lastly, I would say continuous improvement 
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in this area is essential for it to function well. Most of 

the time, we're quick to communicate when we know something 

that's severe, that's significant. Sometimes we don't --

the FDIC doesn't have information where others would think 

that we do.

But our intention is to get better at this,

while being careful to protect sensitive information that 

surrounds these events. So Doreen, those are the thoughts 

that are on my mind on those two issues. I'll turn it back 

to you.

MS. EBERLEY: Thanks. So we were hoping to open 

it up for conversation and get your thoughts on ways we can 

collaborate on other matters and go further in the areas 

that we're already working on together. Any thoughts that 

you wanted to share at all.

MEMBER COOPER: Doreen, Charles Cooper. Can you 

hear me okay?

MS. EBERLEY: I can, Charles. Hi.

MEMBER COOPER: Hey. So just a general comment, 

if I could. We've been working on this for a while, and I 

just want to thank you and Martin and William Henley 

specifically for working with this. We feel like the 

states have a lot to offer, and I know the communication 
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process has been a little bit complicated. I think the way 

that you all have formalized this, working on it through 

these guiding principles that we've been talking about is 

really helpful.

And so I just would like to -- for the states, 

I'd just like to say we appreciate doing that. And we

think this is going to improve on the communication flow. 

And, we will -- which we will state that I think -- like 

Martin stated, I think you'll find out that more states are 

going to be interested in joining this.

Just a side comment, though, we did support the 

modernization of the Bank Service Company Act, which did 

pass the House and it got stalled in the Senate. But, we 

are working on trying to revitalize that for this Congress 

because we believe it'll help going forward. But my main 

point is just to say thank you all for working with us and 

we will promise that we'll do the same with you all. So 

thank you.

MS. EBERLEY: Thank you, Charles. And I think 

Lise Kruse has her hand up.

MEMBER KRUSE: Yes, thank you. And, thank you 

again for extending the invitation for us to participate on 

the -- or even more participation on the service providers. 
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I was so excited to sign that, and we're just really 

excited about what we're doing so far but even moving 

forward. So thank you again.

I have a little bit of a -- it's not really 

quite a related topic. It is a little bit different. But 

there is an area where we do in the coordination, I would 

just really like to know your approach on exams when we 

talk about some of the FinTech areas.

And first -- there's actually really two areas. 

The first one would be stable coins and what your viewpoint 

is on that from an exam perspective because the OCC is 

saying that banks can have stable coins and engage in that. 

And as a state, I have the -- I can also allow that because 

it's allowed for national banks. I would like to know your 

approach on that when we get to exams, if you've given that 

any thought.

And then the other area that is becoming kind of 

a big deal in our state, that I didn't mention earlier, is 

the FinTech partnerships with banks because we currently 

have a really good framework for vendor management. But 

this really goes beyond vendors when we see the direct 

partnerships. And, I think it's important for our 

community banks to have opportunities and to compete in 
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this marketplace.

But really what we see is that there's a 

compliance and safety and soundness crossover. Obviously, 

there's a reputation risk to the banks. But I have some 

concerns when our banks partner like this as far as the 

pass-through insurance. Are those funds insured? And I 

think sometimes consumers assume that the deposits in the 

control of the FinTech are insured. So, I'm not sure about 

that.

And also there's a question here about Reg E, 

the funds availability. Who has the responsibility? Is it 

with the bank or is it with the FinTech? And where does 

the consumer turn for help? And I don't know if that has 

been -- if you've given any thought to those issues and as 

far as coordinating between your compliance examiners and 

the safety and soundness examiners on how we approach this 

on an exam level. Thank you.

MS. EBERLEY: Yeah, I would say thanks for 

raising that, and we've given a lot of thought to it. I 

wouldn't say that we have answers for you today. We have 

lots of questions, and it's something that we're 

coordinating across the FDIC, across all the divisions, 

because the issues that you raised affect a number of 
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different areas of our operation.

If consumers are confused about whether a 

product is insured, it's a deposit insurance issue. It 

could be a resolution issue; and a failure certainly is a 

safety and soundness issue and a consumer protection issue,

just in terms of disclosures and understanding what it is. 

We are absolutely evaluating these sorts of issues across 

the board. And, I think it will be something that we'll be 

able to talk about in the future in greater depth.

But, absolutely, the partnerships -- we have 

found FinTechs partnering with financial institutions and 

the normal due diligence rules apply. We had a 

conversation earlier about the standard setting, publicprivate partnership as one way to help community banks 

evaluate a number of FinTech firms and be able to consider 

a broader universe because their resources are limited. 

They can only look at so many institutions for due 

diligence purposes.

Could be one way to help broaden the ability for 

community banks to innovate and partner. So that's an 

effort that we want to continue on as we're working on 

that. And I'm going to invite Nick Podsiadly, our general 

counsel, to see if he would like to raise any comments. 
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Brandon, Mark Pearce, any others who want to weigh in on 

this topic.

MR. PODSIADLY: Sure, I'm happy to weigh in, 

Doreen. Thank you for the question on this. As Doreen 

mentioned, we're doing a full sort of scope dive on all of 

these matters to sort of figure out where they fall. But 

you are correct that once the OCC has determined these 

activities are permissible, provided your state wildcard 

statute allows for it, you would be able to avail yourself 

of that activity.

We are also doing as part of this kind of a 

pipeline review to determine whether or not our 362 regs,

which are what authorize the permissibility from the state 

level and our federal side. We're looking at whether those 

regs need to be updated because some activities could be of 

greater risk than others. I think with crypto and custody, 

obviously we're pretty clear on our longstanding position 

that we don't insure custodied assets.

But however, there are ancillary suites of 

products and services that come with that such as secondary 

lending, which may have significant risk, particularly if 

you have to peg evaluation to a cryptocurrency on any given 

day. You have -- 20 percent fluctuations can cause some 
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significant changes to it. So, we're thinking through all 

of those as part of our bigger picture on crypto.

We want to make sure that we're planning for 

tomorrow as well as what's being allowed today, looking at 

digital assets as a class as opposed to a currency or a 

cryptocurrency. I think people are also learning about the 

tax consequences of exercising short-term transactions and 

the capital gains that are coming in this space as well. 

So those are things that we need to make sure we're 

thinking about long-term, and part of our strategy will 

focus on some of the risks associated with those as well as 

the benefits of hedging and other sort of ancillary 

products and services.

So, that's how we're looking at it from a legal 

perspective right now. I'll defer to my colleague, Mark, 

on any of the consumer compliance questions. I would just 

add with one piece on that, which is we did clarify last 

year our Section 27 interest rate regulations. And so, you 

can take a look at those.

Obviously, we are in a little bit of litigation 

with some states surrounding those but remain confident 

that the regime that has stood for 30 years in that space 

since Congress authorized it will be defended. And the
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clarity we've brought to the marketplace and to states that 

choose to opt out of that with regard to exportation, those 

remedies still exist in the statute. Thank you.

MR. PEARCE: I'll just follow up on Nick and 

Doreen's comments that the issues around the consumer 

protection, consumer awareness, especially as it relates to 

the deposit insurance piece is something that we had been 

focused on. With the increase in the number of firms that 

are reaching out to consumers to establish relationships 

that rely on a bank in the back-end, it is something that 

can be pretty confusing for consumers. And so, looking at 

ways that we can help educate consumers has been a 

priority.

We have some consumer news publications that we 

do. We have over 100,000 subscribers to that. And, we 

send out all sorts of messages to try to help consumers 

understand, whether they're working with a bank or they're 

working with a non-bank FinTech company, and to just be 

aware that there are some differences there. And so, we've 

tried to communicate that.

And I'd say that raises, as the Commissioner 

indicated, a number of other consumer protection issues 

around disclosures and who bears responsibilities for 
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certain transactions. I think our approach on the 

supervisory side is holding banks accountable for the 

federal consumer protection laws when they offer their 

products through third parties. And I think that's the way 

most banks are seeing it as well, sort of to make sure that 

if there's something around error resolution or similar 

issues that pop up that they have good processes in place 

to make sure that either they're doing it or they have a 

relationship with a vendor that's managing that and that 

they're keeping an eye on that to make sure consumers are 

treated fairly.

We do get consumer complaints from some of these 

partnerships when, for instance, if someone can't get 

access to their money. That tends to get them interested 

in trying to get that as soon as possible. So we do have 

situations where we get complaints that come in to us, and 

we help work with the consumers to help them try to resolve 

those issues where there is a bank involved in the process.

MS. EBERLEY: Okay. Mark, I don't think we have 

any other hands up at this time. So perhaps we can 

transition over to your remarks.

MR. PEARCE: Sure, thanks. Thanks, Doreen. 

And, thanks, it's good to be with you all today. I really 
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do appreciate the comments that were earlier today in the 

roundtable portion of the meeting. And, I want to touch on 

a couple of things that some of the Commissioners 

mentioned.

First, I'd say we share your general supervisory 

observations related to how banks have served their 

customers throughout the pandemic. Folks talked about 

access to bank branches, efforts to work with borrowers who 

are experiencing financial distress. We saw all of that 

through our consumer compliance supervision, banks offering 

PPP, Paycheck Protection Program, loans to small businesses 

in their communities. Some really positive efforts from 

banks throughout the pandemic, and meeting the needs of 

their customers.

We also in some examinations evaluated banks' 

complaint management program, their ability to handle the 

uptick in consumers requesting assistance, and also their 

ability to implement provisions of the CARES Act and 

particularly those related to mortgage forbearance or 

credit reporting. And overall, the experience from our 

examinations is pretty positive as far as how banks have 

managed their responsibilities to consumers during the 

pandemic.
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Similar to what was described earlier, we've 

been monitoring our complaint trends -- our consumer 

complaint trends. They're generally pretty consistent with 

prior years. We did start tagging and trying to identify 

which ones were related to COVID or coronavirus, and about 

10 to 12 percent of the complaints that we received from 

consumers did have some relationship to COVID. But I guess 

the overall message was we didn't see a huge spike in 

consumer complaints, which has happened in some other past 

situations where there's been significant financial 

distress.

And then the last thing that came up this 

morning that I wanted to just mention briefly is I really 

appreciated the collaboration with you all on ways to help 

consumers without a bank account join the banking system. 

A couple of Commissioners mentioned the efforts in their 

states related to Bank On coalitions. And, I think the 

pandemic really brought into belief for a lot of us the 

importance of having a bank account.

For folks who were looking to get their stimulus 

payments, but didn't have a bank account, those folks were 

getting typically their payments much later than those that 

were able to get it through direct deposit. And so that's
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just one example of how a bank account can be important to 

help people manage their financial lives. And I'd 

encourage any of the folks on this call, if you have an 

interest in collaborating related to bank account access, 

let me know.

You can also go to our website. We've got a 

campaign called #getbanked. And so if you go to 

fdic.gov/getbanked, you'll find lots of resources around 

helping people get into the banking system.

The last issue I want to touch on today relates 

to an issue that may be particularly relevant for some of 

the folks on this committee, and others may not have as big 

an impact. It relates -- we all know that we coordinate 

regularly as part of the dual banking system. And, most of 

this panel has talked about our federal-state 

collaboration.

I want to drill down and extend that a little 

bit to talking about collaboration in the insurance 

marketplace, in particular, flood insurance. As you all 

know, for close to 50 years now, federal law has required 

that banks ensure that flood insurance is secured for 

certain mortgages on properties that are in areas prone to 

flooding. And for the most part over history, that's been 
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provided through the National Flood Insurance Program,

which is operated by FEMA.

A few years ago in 2014, Congress enacted 

legislation to encourage the development of private flood 

insurance marketplace by requiring banks to accept private 

flood insurance policies that meet certain standards. We 

finalized regulations pursuant to that statute a couple 

years ago. And also, as part of that, it addressed 

situations not just where banks are required to take 

private flood insurance but also tried to be a little more 

explicit and transparent about situations where banks can 

accept private flood insurance in their discretion.

In that situation, since the states rather than 

the federal government play a lead role in regulating the 

business of insurance, our approach really looks to the 

states to determine if an insurer is licensed, admitted, or 

otherwise approved to operate in that particular state. 

And, it outlines also issues and situations where banks may 

accept policies offered by what are called mutual aid 

societies. These are societies that may typically have a 

bond like a religious or other affiliation that may not –

that may provide something that looks like insurance, but 

it's not a traditional insurance company.
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And the agencies in issuing the final regulation 

addressed those mutual aid societies. So in addition to 

the other requirements that relate to accepting private 

flood insurance, talking here about ensuring that the 

policies offer sufficient protection for the loan in 

accordance with the safety and soundness standards, 

ensuring that the policy provides the coverage and the 

required amount, and protects both the borrower and the 

lender in the transaction. 

The agencies also have to determine if the 

mutual aid policy is sufficient to meet the regulatory 

definition for flood insurance. And to do that, the FDIC as 

I mentioned earlier, we look to the state where the 

property is located. There’s some states, not surprisingly, 

have taken a number of different approaches to how they 

view and relate to those mutual aid societies. We've had 

some that have significant populations in their states with 

a long history of working with mutual aid societies and 

others where this really hasn't been a significant issue.

And so one of the things I wanted to mention 

today as part of our federal-state coordination panel was 

to mention that we have been working with state 

authorities, both bank regulators and your colleagues at 
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different banking departments around the country, but also 

with the state insurance authorities to understand how the 

state views these types of mutual aid societies and whether 

they can qualify under our regulatory definition. This is 

not always easy to do to figure out the status of these 

mutual aid societies.

So in the event that this has been an issue for 

you or for others, and your colleagues, I wanted to raise 

it here in this committee meeting and encourage you to 

reach out to us if you'd like to explore how these types of 

relationships are able to meet regulatory requirements for 

consideration under the federal flood insurance rules. So,

that's it for me. I'm happy to take any questions if 

anybody has any.

MS. KEA: Thank you, Mark. Thank you, Doreen. 

I'm just doing a quick scan here, and I don't see any hands 

raised at this time. We've gotten through a lot of 

information in these short hours that we've had this 

afternoon.

And although we've exchanged a lot of 

information, yet it still seems like there is a lot more to 

get through. But, we will find time in the future to be 

able to do that. We are at the end of our time today. 
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Before I turn it over to the Chairman who will give us some 

concluding remarks and close us out, I would like to ask 

Board Member, Director Gruenberg, did you have any last 

thoughts that you'd like to share with the group before I 

turn it over to the Chairman?

DIRECTOR GRUENBERG: Thank you, Arleas. Just to 

reiterate a word of thanks to all of the Commissioners for 

participating today. I found your presentations extremely 

informative, and I view our partnership with you all really 

as central to the FDIC's ability to carry out its mission. 

So we really value this engagement and thank you for 

participating.

And also wanted to offer a word of thanks to the 

FDIC staff for their presentations today. As always, they 

were thoughtful and informative. So, it's been a good day, 

nice break actually to see you all, and look forward to the 

next time. Thank you, all. Thank you, Arleas.

MS. KEA: Thank you, Director Gruenberg. At 

this point, I'd like to turn it over to Chairman 

McWilliams.

CHAIRMAN McWILLIAMS: The Chairman just got the 

camera working. Can you see me, Arleas?

MS. KEA: There.
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CHAIRMAN McWILLIAMS: Can you see me?

MS. KEA: We can see you. We can see you, yes.

CHAIRMAN McWILLIAMS: Oh, perfect, perfect. 

Thank you, Arleas. Thank you, Marty. I profoundly want to 

thank the Commissioners for joining us today. I know that 

it is exceptionally busy in their states with the pandemic 

response; and the stimulus package being distributed; and 

doing just general supervision; and mentoring and 

developing staff.

I cannot thank you enough for giving us what 

essentially ended up being almost an entire day of your 

time. But I also cannot thank you enough for the 

perspective that you provide to us because it is 

exceptionally valuable. Marty touched upon it.

But I will just tell you that, yes, I talk to 

some of you from time to time and, yes, we have different 

fora through which we can communicate. But, having you all 

around the table and kind of teeing off of the same topic,

or similar topics, and seeing how each state is responding 

to some of these topics is extremely valuable to us. And 

it also frankly helps us develop policies going forward as 

to how to strengthen both our cooperation and teamwork, but 

also the way we regulate our entities jointly, et cetera.
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And I also want to thank you because the FDIC 

staff here today, as always, extremely knowledgeable, 

extremely helpful. But the Commissioners, I want to thank 

you because I've seen some of them for the first time in 

many, many months with a suit and a tie. So, you succeeded 

in something I haven't succeeded in several months.

But I'm optimistic that with the vaccination 

rollout, and thank you for the information you provided on 

that in your states. With the vaccination rollout, we're 

looking at the end of the tunnel and the light at the end 

of the tunnel. And so I'm hoping that next meeting we 

have, I think it's probably going to be in the fall, is in 

person.

And I hope that you and your families are 

staying healthy, your staff as well. And, I wish you very 

best as you navigate the remaining months of the pandemic. 

I want to thank you profoundly for both your support, but 

also your friendship and the words of encouragement from 

the FDIC. Thank you and God bless you.

(Whereupon, the above-entitled matter went off the record 

at 4:25 p.m.)