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FEDERAL DEPOSIT INSURANCE CORPORATION

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ADVISORY COMMITTEE OF STATE REGULATORS

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MEETING

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WEDNESDAY,

OCTOBER 14, 2020

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The Advisory Committee convened at 

1:00 p.m. EDT via Video Teleconference, Jelena 

McWilliams, Chairman, presiding.

PRESENT:

BRET AFDAHL, Director, Division of Banking, State

of South Dakota

KEVIN R. ALLARD, Superintendent, Division of

Financial Institutions, State of Ohio

CHARLES G. COOPER, Commissioner, Department of

Banking, State of Texas

THOMAS C. FITE, Director, Department of Financial

Institutions, State of Indiana

MARY L. GALLAGHER, Commissioner of Banks,

Commonwealth of Massachusetts

GREG GONZALES, Commissioner, Department of

Financial Institutions, State of Tennessee

KEVIN B. HAGLER, Commissioner, Department of

Banking and Finance, State of Georgia

MELANIE G. HALL, Commissioner, Division of

Banking and Financial Institutions, State 

of Montana

DAWN E. HOLSTEIN, Commissioner of Banking,

Division of Financial Institutions, State 

of West Virginia
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I. LISE KRUSE, Commissioner, Department of

Financial Institutions, State of North

Dakota

G. EDWARD LEARY, Commissioner, Department of

Financial Institutions, State of Utah

JOHN RYAN, President and Chief Executive Officer,

Conference of State Bank Supervisors

ANTONIO P. SALAZAR, Commissioner, Office of the

Commissioner of Financial Regulation, State

of Maryland

MICK THOMPSON, Commissioner, Banking Department,

State of Oklahoma

FDIC PRESENT:

JELENA McWILLIAMS, Chairman

MARTIN J. GRUENBERG, FDIC Board of Directors

DOREEN EBERLEY, Director, Division of Risk

Management Supervision

GEORGE FRENCH, Corporate Expert & Senior Advisor,

Division of Insurance and Research

EMERSON HALL, Associate Director, Community

Affairs, Division of Depositor and Consumer

Protection

BRANDON MILHORN, Deputy to the Chairman & Chief

of Staff

RAE-ANN MILLER, Associate Director, Risk

Management Policy Branch, Division of Risk

Management Supervision

SHAYNA OLESIUK, Associate Director, National &

Regional Risk Analysis Division of 

Insurance and Research

ELIZABETH ORTIZ, Deputy Director, Consumer and

Community Affairs, Division of Depositor 

and Consumer Protection

JONATHAN POGACH, Chief, Financial Modeling &

Research Section, Division of Insurance and

Research

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

PAGE

Introductory Remarks .......................... 4

Discussion of State Banking Conditions ........ 6

Community Bank Consolidation ................. 88

Rapid Prototyping Competition and Request for 

Information on Proposed Voluntary Certification 

Program to Promote New Technologies ......... 116

State-Federal Coordination .................. 139

Update on Financial Inclusion Efforts ....... 173

Closing Remarks ............................. 192
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P-R-O-C-E-E-D-I-N-G-S

1:06 p.m.

CHAIRMAN McWILLIAMS: Good afternoon, 

and good morning as the case may be since we have 

members from throughout the United States. 

Welcome to our meeting. And frankly, I 

apologize. We were supposed to meet sooner. We 

were trying to organize this committee meeting a 

long time ago. And unfortunately, events have 

superseded us.

It's good to see you here today. We 

look forward to a robust discussion. To say that 

this year has been unprecedented would be an 

understatement as all of you know, dealing with 

your banks on the ground in your individual 

state, how challenging the last six or seven 

months have been with the outbreak of the 

coronavirus pandemic and the related business 

closures throughout the United States.

So I would say it's very timely to 

have you here today. We look forward to hearing 
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what you have to say and certainly hearing any 

input and recommendations you may have for the 

FDIC moving forward in these challenging times. 

With that, we can begin today's committee 

meeting, and I welcome you all on board.

MR. DAVIS: Thank you, Chairman. I 

will be emceeing the meeting today. Before I get 

started, Director Gruenberg, did you have 

anything you wanted to add?

DIRECTOR GRUENBERG: Thank you, Chad. 

Only to say I think it's a terrific opportunity 

for all of us to get together and share our 

perspectives here. It's been a long few months, 

so I'll be most interested in hearing what you're 

seeing in your states and how your institutions 

are doing. So I just want to thank you all for 

taking part in today's meeting and thank the 

Chairman for hosting it.

CHAIRMAN McWILLIAMS: Thank you, 

Marty.

MR. DAVIS: Thank you. And with 
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that, we will get started. I would like to add 

my welcome and thanks to all of you. I've 

enjoyed talking with each of you as we put this 

together and look forward to this meeting, even 

if it is a few months late, to kick off this 

committee that I look forward to working with.

We're going to start this afternoon by 

turning to the committee members for a discussion 

about trends and issues related to the banking 

environment and the conditions in their states. 

After we've heard from committee members, we've 

also asked some of our FDIC staff members to 

discuss their observations. Shayna Olesiuk, 

Associate Director, National and Regional Risk 

Analysis from our Division of Insurance and 

Research, is going to go over some observations 

about the national economy and banking trends.

We also have Camille Schmidt, Chief of 

Emerging Issues Section in the Division of Risk 

Management Supervision. Camille is going to 

discuss trends in the risk management practices. 
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I'd like to start our committee member discussion 

with Kevin Hagler from the State of Georgia who 

will be followed by the other committee members. 

Kevin, please go ahead.

MEMBER HAGLER: It's an honor to be 

part of the program and part of the Board today. 

Thanks for pulling this event together. I sort 

of been looking forward to it and have been for 

quite some time. It's probably a fairly 

consistent theme amongst all of us today.

But for us and for me, one of the 

challenges has been the stimulus money that's 

been involved. And I say challenge in that it's 

hard to really read the tea leaves as to what's 

happening in and around me. But it's a good 

problem to have.

The governor's office was predicting 

billions of dollars in decreased revenue for the 

state in terms of tax collections and things as 

we were going into the pandemic based on the 

closures and things of that nature. And just 
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looking at some of the most recent financial 

information that the state’s put out, gross sales 

taxes for the first quarter of the state's fiscal 

year, so July 1 through September 30th, the sales 

taxes are up 4.2 percent. Individual income 

taxes are up 11.2 percent.

Alcohol and tobacco sales are up. Gas 

collections are slightly down and the hotel/motel 

taxes are down 29 percent. So I think that's the 

biggest anomaly that we're seeing. But really 

just comparing the month of September to the 

prior year, I think we're up 6 or 7 percent.

So obviously based on that, the 

stimulus money seems to be having a very positive 

effect. I guess what keeps me up at night is how 

long that'll continue. And when that stimulus 

money kind of runs its course, what do we wind up 

with?

Being the ever pragmatic regulator, 

trying to take a look at my portfolio to see if 

there's any indications there, again, I don't 
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think we've had anything in the way of downgrades 

for the institutions other than the occasional 

CAMEL component here and there, but nothing that 

really would lead me to a trend. I've tried 

taking a look at asset quality in particular with 

the loans that have been identified by the banks, 

of course, that are currently identified as 

classified loans or assets. But also taking a 

look at what else they’ve either done some kind 

of modifications with or restructuring or 

deferments, anything of that nature.

And while it would not be appropriate 

to classify those, of course, just taking a worst 

case scenario, what if we did consider those to 

be classified assets? And even doing that with 

a fairly small sample, let me preface it with 

that, you know, really, that kind of small sample 

of banks that I looked at, that really just moved 

asset quality into the needs improvement 

category, and even then, only moderately or 

mildly. So these would give the impression that 
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a problem would be something that could be easily 

worked out during the regular course of business.

So again, not sure that's really worth 

much in terms of an observation. But just trying 

to figure out something to get a look at that's 

going forward. In terms of, like I said, with 

tax revenue being up, banks actually looking 

fairly solid right now, trying to -- this theme 

of things starting to feel a little more normal, 

I have attended two industry events in person in 

recent history.

I'm not going to say that that was 

really probably the best idea. But it did seem 

a little more normal to be around other people in 

person that I'm not related to. So that was a 

nice break. But again, it may have been a little 

early for that, but it does give this feel that 

things are starting to move back in the regular 

direction.

And then kind of end on another good 

note is this afternoon at 4:00, my staff is 
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attending a Board meeting for a de novo bank that 

has finished their capital raise and I think are 

going to open up on the 19th of this month. So 

that's a victory for us and the colleagues there 

at the FDIC. And then we've got another de novo 

bank that has quickly raised capital and will be 

close on the heels of the one opening up soon.

So like I say, things look good right 

now. Knocking on as much wood as I can find to 

make sure that I don't jinx things. But those 

first impressions are the stimulus money and

things of that nature are working and helping. 

So in the interest of time, I'll stop there and 

be happy to talk more later if I'm called upon.

MEMBER KRUSE: So I'm Lise Kruse. 

I'm the commissioner in North Dakota. Thank you 

for establishing this Advisory Board and showing 

your willingness to hear our stories from the 

various parts of the country. Representing a 

rural state, I appreciate the opportunity to 

share how our banking industry is doing at this 
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time.

The biggest driver of the North Dakota 

economy is the agricultural industry. We had a 

tough year last year with lots of flooding. But 

although there are some distressed borrowers, our 

banks have actually done pretty well across the 

board with minimal impact to their overall 

condition. And the latest data from USDA is 

indicating that crops are close to or ahead of 

historical averages. So this year should, by 

far, be better than last year.

Oil and energy is another area with 

impact in our state. And although the price per 

barrel is up and production is up, there's still 

volatility in this area. Our banks are not 

directly involved in exploration. It is more on 

the supporting businesses.

And the banks with this indirect 

exposure have well-diversified portfolios. And 

so the overall impact on their condition is 

manageable. Although the impact of unemployed 
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workers across the state is yet to be seen. 

That's where we have seen maybe the biggest 

change in our state because our unemployment was 

one of the lowest in the nation for a long time.

In March, it was at 2 percent, and 

that drastically increased to 9.1 percent in 

April and May. In September, it was back down 

to 5 percent which was lower than the national 

rate of 8.4. The biggest concern I would say for 

our banking industry has for a while been multifamily and hotels.

The hospitality industry has, of 

course, intensified the pressures they've endured 

due to COVID with the travel and tourism hit hard. 

We noticed that the Canada border is closed. But 

our state has not shut down. Businesses have 

remained open.

And then combined with low contagion 

of the virus over the summer, we did see some 

tourism. Not just in-state travel, but it seems 

like this is the year that people wanted to visit 
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North Dakota. So the June statewide hotel 

occupancy rate, although it was down, it was 

still at 40 percent, and that's compared to 66 

percent in June 2019.

So obviously, tourism slows down for 

us during the winter months. So the hospitality 

industry will continue to experience pressures. 

Specific to help our economy in response to 

COVID-19, our state's commerce department has 

administered an economic resiliency grant for 

businesses to help with costs associated with 

improvements to their business for the purpose of 

reducing the spread of infection and instilling 

consumer confidence in the marketplace.

Also, the Bank of North Dakota is 

administering two programs in partnership with 

banks also. And those are -- one is a low 

interest loan program and one interest buy-down 

program. All of these programs help alleviate 

pressure on borrowers and our banks.

Again, any of our banks with exposure 
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to any negatively affected commercial loan or 

commercial real estate sector are well 

diversified. And recent examination results 

indicate that concentrations are well monitored 

and mitigated and loan portfolios are well 

managed. Right now, as Kevin said, it's 

challenging to predict how things are going to 

transpire over the next few months. But I 

believe that our banks can weather the storm due 

to their current health and robust capital 

position.

As of now, North Dakota does not have 

any banks on its problem bank list. Our 

community financial institutions have shown a 

tremendous commitment to their customers

throughout this pandemic. And it's evidenced by 

the high volume of PPP loans North Dakota 

financial institutions have issued.

Every day, I communicate with bankers 

having to balance the safety of employees and 

customers while closing down lobbies. But 
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they're still providing essential financial 

services via drive-up windows and online 

channels. The strength of a rural community is 

its local financial institutions which is there 

for its customers through difficult times.

I appreciate the FDIC's effort in 

providing clear expectations and guidance to 

ensure fair and consistent oversight over our 

community banks. And I hope that this will 

continue as our banks walk through these 

challenges. It helps rural communities having 

access to essential financial services, and I 

believe that is always best provided by community 

financial institutions. That concludes my 

remarks. Thank you.

MEMBER SALAZAR: Good afternoon. I'm 

Tony Salazar, Commissioner of Financial 

Regulation for the State of Maryland. And I 

wanted to also echo the other speakers – if I 

start my video, of course. I wanted to echo the 

other speakers and thank Chair McWilliams and the 
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FDIC for the opportunity to join with my fellow 

state regulators for the discussion, particularly 

during the consequential time that we have now. 

And I know it's also very challenging.

Normally, the cooperation is very good 

between the FDIC in our experience in the State 

of Maryland. And I just would like to comment 

and thank the Chair and the staff of the FDIC for 

being very cooperative and communicative. And 

there has been very good efforts, coordination 

since the pandemic.

And I think that's really made a 

difference in helping us at the local level carry 

out our jobs of communicating with the 

institutions, giving them a sense of comfort that 

the regulators were working in conjunction with 

each other and with one voice. The consistency 

of messaging is very important. And I think that 

going forward, one of the recommendations I would 

have is that we continue with consistency of 

messaging and consistency with the policies 
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that'll kind of ask the banks to work with their 

customers and their forbearances and go forward 

with that.

At the start of the pandemic, 

obviously, there was a lot of uncertainty as to 

where things were going. And I guess I'd say to 

a great extent today, there's still that 

uncertainty in the banking area. But it's 

tempered at this time with some optimism.

There's a difference now between at 

the beginning of the pandemic when there were 

shutdowns and people were uncertain as to where 

they were going. But Maryland bankers from my 

interaction and from what I can see have really 

dealt well with the hands they have been given. 

Our team reports that in conversations with them, 

they have a good handle on their loan book and 

where they identify problems.

So that's always important to us as 

regulators that the institution knows their own 

business and knows where they're going. To echo 
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some of the comments you heard before, we don't 

have any institutions as well that are troubled. 

They're all well capitalized.

Our institutions, I'm proud to say, 

really stepped up as Commissioner Kruse mentioned 

in South Dakota, North Dakota that during the 

pandemic, they provided assistance to community 

members. They worked hard with the PPP loans, 

whether it be for their own customers or for noncustomers as well. And then they've managed to 

also protect their employees and keep essential 

services available. So we were all very happy 

on all those fronts.

In terms of Maryland itself, we are 

benefitting right now I think from some of the 

efforts that the governor took early on in that 

our positivity rate is low. The number of 

infections are low which is allowing the state 

government to slowly and science-based carefully 

roll back the restrictions that they had put in 

place. And that is obviously benefitting the 
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business community.

We here in Maryland have kind of three 

different areas, I guess I'd say. We have the 

western community which is much more rural. And 

as Commissioner Kruse mentioned, kind of 

counterintuitively, they did see an increase in 

people visiting out west, maybe getting away from 

populated areas. So business was okay there and 

is expected to continue that way.

The more cosmopolitan center of the 

state, as you may know and many members of your 

staff, I'm sure there's a bunch that live here in 

the state of Maryland, is buoyed by the fact that 

we have federal government employment. We have 

a number of fine educational institutions here. 

So that has helped, I believe, maintain the 

economic situation to a certain extent.

And the institutions here are, of 

course, worried about some of the commercial real 

estate because that has been impacted in the more 

urban areas with people working remotely as I'm 
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doing today. I spent half the day in the office 

and half the day here, and our office is entirely 

working remotely. But I do know, as Kevin 

mentioned, that along with our office and some of 

the institutions, people are starting to get back 

to more normal hours working at more 

institutions. And I think that will be favorably 

received and help out the banks.

Lastly, we have our shore area which 

is, again, kind of relying on the tourism 

industry and reliant on the hospitality. But 

they have also managed to hold their own. I 

guess it's a popular destination. We'll see how 

it goes in the fall.

But overall, the institutions are all 

reporting that there's a cautious optimism there. 

I think what you'll find, though, is that is 

uneven as nationally we'll probably hear about 

some of the industries that have really been 

battered and are facing difficulties. It's the 

same thing with our populations.
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So the folks that were able to work 

remotely and in the professions, they're probably 

doing okay. But there is a substantial number 

of people that were seriously affected by this 

COVID-19 and many of the frontline workers. And 

so I guess, to what it's worth, Kevin mentioned 

that the stimulus was making a big difference and 

there's been a call. I know our governor and 

leaders in the Board of Public Works put out a 

call that an additional stimulus would definitely 

be welcome. And I think if you speak with our 

Maryland bankers, they would all agree with that.

So with that, I will end my remarks 

saying that we are cautiously optimistic here in 

Maryland that following the science and taking a 

measured approach has helped us keep infections 

low. And we believe that that's driving the good 

economic situation that we're seeing right now. 

We hope that that will continue. So with that, 

thank you. Looking forward to the conversations 

the rest of the day.
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MEMBER HALL: Good morning or good 

afternoon, depending on where you are. Things 

here in Montana are not dissimilar in some 

respects from around the rest of the country in 

terms of banking. Our banks have been incredibly 

busy working with their customers, doing PPP, but 

also some Montana-specific programs that were

made possible by CARES Act funds that I want to 

spend a little time talking about today because 

I think it's important.

So the state took some of the CARES 

Act funding and put together a program that would 

allow banks to work with their customers if the 

customer could show a 15 percent decrease in 

revenue in any three-month period, they could 

then apply through their bank to the state and 

the state would be willing to use CARES Act funds 

to pay their interest payments directly to the 

bank for up to 12 months at 6 percent interest 

for a total up to 150,000 dollars. So much 

larger credits there were some individual 
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negotiations on.

But this essentially allowed the state 

to buy some time for customers that were really 

feeling the impact. And so a 15 percent revenue 

loss is not tremendous. It allowed us to get a 

number of people into the program.

And I believe at this point, they 

spent around 100 million dollars which had the 

added benefit of sort of helping banks to keep a 

ton of loans from going on to their problem list 

and from having an earnings hit all at once from 

that occurring. So I think it's a really great 

program that we worked on with the Montana Board 

of Investments in order to get some of the CARES 

Act funds out to small businesses. There have

also been small business stabilization grants and 

other programs for ag businesses and other 

industries around the state.

In addition, I think that Montana 

banks have had probably a limited impact from 

COVID because in the very beginning, Montana is 
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pretty rural, our numbers were very, very low. 

And so people from what I call the Sand States, 

so the states on the outside, sort of flocked to 

rural America in order to breathe some fresh air 

and take their masks off and enjoy the outdoors. 

And so Montana's tourism industry had a pretty 

successful summer.

Some of the hotels certainly have 

lower occupancy rates as most people instead of 

flying here and renting a car instead drove their 

cars and camped or rented campers and drove out. 

But a lot of the tourism businesses, restaurants, 

grocery stores, all of those sorts of things in 

tourist communities did pretty well through the 

summer. The impact of that, however, is that 

everyone brought their COVID with them to 

Montana, and our numbers are currently spiking 

pretty significantly.

As we move into the fall and the 

winter which are always challenging times here in 

Montana when it begins to snow and everybody 
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begins to cluster indoors, the state continues to 

worry about increasing cases, people gathering. 

The majority of the events that have resulted in 

sort of the spread have come from people coming 

into town or from out of state going to weddings 

and other large gatherings. So we're paying 

attention to that in addition to the fact that 

Montana is not known for its oversupply of 

hospital beds.

And so we are paying particular 

attention to the numbers and watching what might 

could happen economically if we have to go back 

into more of a shutdown going into the late fall 

here. I mean, I guess it's just early fall in 

most areas of the country. But we're waking up 

to freezing temperatures here, so the end of fall 

and beginning of winter here in Montana.

Banks overall seem to be doing 

incredibly well from an economic standpoint but 

are frustrated and exhausted, as I'm sure they 

are in other parts of the country, and realize 
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that there could be some tough times ahead. They 

are thankfully taking numerous steps in order to 

prepare for that. Additionally, the exam process 

with banks has gone off pretty smoothly. We were 

pretty well prepared to going to doing exams 

remotely.

And so all of our banks have continued 

to be on their normal process. And we have just 

worked with them in order to find a way to make 

that work. So things here in Montana are getting 

colder and case numbers are spiking. But 

overall, the banks are doing exceptionally well. 

Thank you.

MEMBER GONZALES: Greg Gonzales, 

Tennessee Commissioner of Banking. Thank you, 

Chairman, for giving us this opportunity to have 

this conversation. I really do appreciate it. 

I appreciate the working relationship with the 

FDIC.

And I'd also like to thank Regional 

Director Kristie Elmquist for always working with 
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us in a great way but in particular during these 

challenging times. It's very helpful. And 

while I'm at it, I did want to thank you, 

Chairman, Kristie, and the FDIC consumer 

compliance staff that works in Tennessee for what 

they've done to facilitate small dollar lending 

in the state. We think this is going to be very 

helpful to Tennessee's recovery over time.

As far as banking conditions are 

concerned in the state, the Tennessee banking 

system is strong. And I really want to start 

with what Governor Bill Lee and countless 

Tennesseans have engaged in for months. Governor 

Lee has focused on health concerns but also 

created an economic recovery group in the spring 

to safety reopen Tennessee's economy.

This group created what's called the 

Tennessee pledge to give guidelines for all 

businesses, organizations, and for certain 

activities in the state. The initial goal was 

to help businesses safety reopen, and there's 
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been updates to that to ensure and support 

healthy communities and open businesses. And 

this work I believe is going to have a profound 

positive impact on banking conditions in 

Tennessee.

The sense that I get in talking to 

bankers is one of optimism. But just like 

everyone else, there's a lot of uncertainty and 

they obviously recognize that. Tennessee 

bankers continue to fully serve citizens through 

whatever methods are needed depending on local 

conditions, including more online banking.

Of course, as you know, bankers 

stepped up in a big way to push out Paycheck 

Protection Program funds. Bankers hope for a 

streamlined process for loan forgiveness. 

Additional relief for small business is needed 

with further support, the health of the banking 

system. In Tennessee, PPP loans amount to about 

nine billion dollars.

And one of the questions that 
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Tennessee bankers have raised that I want to pass 

on to you is that bankers request the exclusion 

of PPP loans from regulatory asset threshold 

calculations to avoid the inadvertent and 

premature push of community banks over certain 

thresholds, resulting in additional supervision 

and cost that banks had not yet prepared for. 

Bankers have told me that in these uncertain 

times, it could be detrimental to get pushed into 

a heightened regulatory environment unprepared 

all because of being first responders in an 

economic emergency.

A couple of other questions that have 

been pointed out to me recently. Some banks have 

raised a concern about the need for more 

temporary relief from TDR designation credits 

that continue to be impacted by the pandemic.

Broadly, as I'm sure others have received queries 

just in general about how examiners are going to 

assess bank efforts during the economic 

emergency. And in that regard, we're having 
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regular conversations with our examiners to see 

if there are issues that are surfacing out of 

exams who we look forward to having further 

conversations with the FDIC and the Fed over 

time.

As far as the Tennessee banking system 

as a whole is concerned, one of the biggest 

challenges and really opportunities for us is 

dealing with the unprecedented growth that we've 

experienced in our bank and trust industries. 

Just in the last few years and really before the 

pandemic, the bank and trust industry assets 

under our supervision have quadrupled. And just 

over the last 12 months, the Tennessee state 

banking industry doubled due to a large bank 

conversion to a state charter and a subsequent 

acquisition by the converting bank.

As a consequence, the department is 

working through strategic planning to determine 

what resources and infrastructure is going to be 

needed in the future. I believe that we're going 
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to have the budget support to not only meet our 

mission but to enhance our regulatory partnership 

with the industry and with our federal partners. 

Finally, when I think about banking conditions, 

I think about banking services, especially to 

those citizens who may be the most vulnerable in 

this environment.

Tennessee is home for two historic 

minority depository institutions, including the 

oldest continuously operating minority bank in 

the United States. And the other bank played a 

historic role in the civil rights movement. I 

just wanted to let you know that we are enhancing 

our partnership with these two banks in support 

of the communities they serve. And thank you 

again, Chairman, for this opportunity.

MEMBER ALLARD: Good afternoon, Chair 

McWilliams, Director Gruenberg, and FDIC staff. 

I'm Kevin Allard. I'm superintendent with the 

Ohio Division of Financial Institutions. I'm 

very honored to be named to the inaugural FDIC 
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Advisory Committee of State Regulators and to 

share a little bit of information about banking 

conditions here in Ohio.

Ohio banks are doing very, very well. 

Over the last seven months, they've worked very 

hard, first initially adjusting their operations 

as a result of the pandemic and then more recently 

helping their communities and their borrowers in 

terms of funding PPP loans. In Ohio, we have 114 

state-chartered banks with assets totaling 65.8 

billion.

Our 114 charters include 6 

nondepository independent trust companies. Ohio 

banks in the second quarter grew by 5.2 billion 

dollars with 4.1 billion dollars in PPP loans 

being the main driver in that growth. As I said 

earlier, Ohio banks are strong at this time. No 

significant problems or concerns have been noted.

With regard to industry activity, we 

do continue to see some consolidation, no real 

increase or decrease in the last 12 months. As 
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others have mentioned, we have one de novo bank 

in the formation stage and we have a second de 

novo bank application pending. Earlier this 

year, we approved a conversion of a federally 

chartered thrift to a state bank.

And we have a second federally 

chartered thrift that has applied to convert to 

a state bank that is pending before the division. 

With regard to financial performance due to PPP 

loans and deposit growth, the median Tier 1 

capital ratio for Ohio banks decreased about 60 

basis points to 10 and a half percent at the end 

of the second quarter. Ohio banks generally are 

experiencing loan growth, even outside of PPP 

originations for most institutions.

We have seen a little bit of downturn 

in terms of return on average assets and net 

interest margins. Delinquency numbers still 

remain low. As far as 4013 CARES Act deferrals 

at the end of the second quarter, Ohio banks had 

deferred over 15,000 loans totaling about 6.6 
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billion dollars. And this represents 

approximately 96 percent of Tier 1 capital on the 

loan loss reserve. Through our exam work through 

the end of the second quarter and anecdotally 

talking with bankers, it appears that these 

numbers of deferrals are going to decline 

significantly in the third quarter.

With regard to our examination 

posture, we are successfully doing all of our 

exam work remotely. We have no open examinations 

at this time, and I don't see this posture 

changing anytime soon. That is my report. I 

thank you for the opportunity to participate 

today, and I look forward to the conversation. 

Thank you.

MEMBER RYAN: John Ryan, President 

and CEO of CSBS, and I will keep my remarks brief 

because I think on this topic, there's a lot more 

to learn from the Commissioners given their 

perspective at the local level. And just two 

things that I wanted to comment on. One is my 
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observation from my seat on the resiliency of our 

financial regulatory system.

We've certainly seen a resiliency 

among those institutions we regulate, strongly 

supported as been noted repeatedly by funds 

through the CARES Act. But our regulatory system 

really has been resilient in its response to the 

crisis.

Most had not planned on taking their 

supervision to a completely remote status, and 

that has worked fairly seamlessly across the 

country. And add to that the coordination with 

our federal counterparts equally as seamless, all 

things considered. And I think that we came into 

this, one, with a strong industry, a wellcapitalized industry, made it a little easier to 

move to remote examination status, and that we 

came into this with really strong relationships 

with the FDIC and the Federal Reserve in 

supervising those entities.

Another thing that I wanted to add and 
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I know we're going to talk about this later today. 

But from a CSBS perspective, the states have been 

focused on technology and the use of technology 

to support supervision and data to support 

supervision and a modern approach to supervision. 

We have had this as part of our strategic plan 

for quite some time, but it really became a focus 

in the last year.

And we have been able to quickly 

deploy resources on the data side to support that 

offsite examination as well as some -- for those 

it would assist, some technology resources to 

support offsite supervision. But I think the 

discussion that we're going to have later this 

afternoon on the intersection between data, 

technology, and supervision and where we go is 

incredibly well timed. And we probably advanced 

our efforts in that area in the state system by 

at least five years by the necessity of 

functioning in this way.

That closes my remarks. And again, I 
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repeat the thanks to you, the Chairman and the 

Director, for hosting this event. So we really 

appreciate this, and we appreciate this being the 

beginning of a good discussion between the FDIC 

and the states on bank and financial regulation.

MEMBER HOLSTEIN: Good afternoon, 

everyone. It is a pleasure to be with you here 

today. I'm honored to be included on this 

advisory committee, and I thank you, Chairman 

McWilliams, for the opportunity.

My name is Dawn Holstein. I'm the 

Commissioner of the Division of Financial 

Institutions in West Virginia. And the banking 

conditions in West Virginia are stable, primarily 

due to West Virginia's economy historically has 

never been a big boom state. And conversely, it 

has never been a real bust state either.

However, the economy within West 

Virginia is quite varied throughout the state. 

Those more prosperous areas over the last ten 

years haven't been hit quite as hard by COVID-19 
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and have rebounded better than the economically 

challenged areas of the state. We have a very 

challenging terrain here within West Virginia, 

and that has brought some challenges with the 

transition of business and even our office with 

many sectors of our state does not have wide span 

quality broadband.

And there has been a big push within 

our governor's office to really significantly 

strategize efforts to making this a priority 

within the state for homeschooling as well as 

work from home situations. As far as the economy 

is concerned, the manufacturing appears to be 

back to pre-COVID levels. However, hospitality 

and recreation have not rebounded as quickly. 

And this is a large portion of the West Virginia 

business industry.

While the state's recovery from the 

virus may not be a classic V-shaped recovery, the 

state has recovered roughly two-thirds of the 

jobs that have been lost due to COVID-19. And 
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kind of the middle of the road outlook is that 

all jobs should be recaptured by sometime within 

2022. So we do have a road ahead of us, of 

course.

West Virginia is very much a small 

business state, and West Virginia banks have done 

a -- just a fabulous job in managing and 

navigating COVID-19 for these businesses through 

the PPP programs and providing customers the 

assistance that they've needed to continue 

surviving actually. As an agency, we have worked 

diligently with our institutions to assist them 

in staying current with the technologies that 

have been acquired within the financial industry 

prior to COVID. So many of these technologies 

were in place and assisted with their abilities 

to respond and adapt accordingly.

The other few items that the West 

Virginia Division of Financial Institutions is 

currently engaged actively in are the newly 

developed Fintech Sandbox program that was 
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approved by our legislature, 2019 last session. 

And we are currently also continuing to work 

efforts with -- as our institutions navigate some 

new marijuana banking legislation of prior years. 

And that is coming to fruition this past year.

So overall, we are very cautiously 

optimistic here in West Virginia. Our banks have 

responded. We've had no particular issues at 

this point, and we hope obviously that continues. 

We're prepared for any issues that may arise. 

But overall, we are doing well.

We appreciate -- I didn't want to 

leave without saying how much we appreciate the 

relationship with the FDIC, the transparency, the 

consistent messaging, the bringing together of 

all agencies to allow us to unite against the 

pandemic and make sure that the banking systems 

across the nation have stayed stable and have 

really risen to the task of taking care of all of 

the consumers, citizens, business owners and 

everything throughout the pandemic. So that's 
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about all for West Virginia. Thank you so much.

MEMBER AFDAHL: Hello, Chair 

McWilliams and everyone else on the call today. 

My name is Bret Afdahl. I'm the Director of the 

Division of Banking in South Dakota.

I guess a lot of similar remarks today 

that you've heard already. I guess I would start 

with the COVID situation here because I guess 

somewhat like fashion and movies, sometimes it 

takes a little bit longer for things like this to 

-- sometimes it takes a little bit longer.

So with that and the busy tourism 

season, we're definitely seeing a pretty 

significant increase in cases. And what that 

brings to us, I'm not exactly sure from an 

economic standpoint. Schools and different 

businesses have had to take varying steps over 

the last month or so to keep themselves 

operational.

And on that note, our banks are in 

pretty good condition, both from a safety and 
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soundness perspective but also from an 

operational standpoint. I think the last 

information I have, we were down to about six 

banks that had one or more locations closed to 

walk-in traffic and doing business by 

appointment. We've done three rounds of calls 

to our banks.

And at the peak, I think we had 32 

banks that had at least one location closed to 

walk-in traffic, mainly as a precaution when 

there was an outbreak in their community. I 

think as we go forward, we're starting to see and 

we'll more instances where banks are having to 

partially or fully close branches because of 

outbreaks within their staff. So quite a few of 

our banks have been operating on a two-week on, 

two-week off basis by splitting their staff. And 

I think we will be going to that as we move 

forward.

I think the -- we had all but four of 

our banks participated pretty heavily in the PPP 
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loan program. It was a big lift as some said. 

And a couple banks, there just wasn't the 

interest in it locally. And then a couple of 

banks just were not able to get on. So a 

significant effort to do that.

As many have said, it is pretty 

difficult to understand what's going on out 

there. Our biggest industry in the state is 

agriculture. And on a national basis, there were 

36 percent of net farm income this year was made 

up of direct payments through the CARES Act and 

other funding mechanisms.

And obviously, that level of support 

is not sustainable. And while it provides shortterm benefit in stabilizing that industry, it 

does make it more challenging to understand 

what's going on out there. But our banks are 

working through that, and I think the next 

renewal season starting at the beginning of the 

year will be one of the more challenging ones. 

And on top of that, I would say that last year, 
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our state led the nation in prevented plant 

acres.

And this year, we flipped the script, 

so to speak. I think over 99 percent of our 

state is abnormally dry, 33 percent is in some 

level of drought, and 9 percent of the state is 

in severe drought. So that has had some impact 

on current year crops, some positive, some 

negative with reduced production tends to drag 

the price up a little bit. I think depending on 

how the winter plays out, it could pose a 

challenge for next spring.

From a state perspective, our 

unemployment rate has come back down. We're at 

4.8 percent as of August. Still waiting on 

current numbers. But compared to a year ago, 

we're still -- we have a ways to go. We were at 

3.3 percent in August of 2019.

Like other states, leisure and 

hospitality have been the most impacted sector. 

It's down almost 14 percent this year. But we 
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did have a pretty robust tourism season all 

things considered.

And with all the stimulus money, our 

state revenues were up 8.7 percent year to date 

through October 9. And some of it's kind of 

predictable sectors. Some of it's not. I know 

that video lottery is up quite a bit. Unclaimed 

property is up quite a bit, and investment income 

is up quite a bit.

Two sectors that are down or two tax 

sources that are down quite a bit are a little 

bit of a head scratcher. The alcohol beverage 

tax is off by 8 percent, and the alcohol wholesale 

tax is off by 56 percent. So I guess my 

uninformed take away from that is that people are 

drinking more at home and not at bars and saving 

themselves the money that's costing the state. 

And travel spending is obviously down quite a 

bit, 21 percent off here in South Dakota.

Similar to Melanie in Montana, I did 

want to take just a minute or two to talk about 
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a program that's being rolled -- actually, it was 

rolled out yesterday by Governor Noem and the 

legislature. They've set aside 400 million 

dollars of the CARES Act funding South Dakota 

received for a small business grant program. So 

it'll have a maximum grant size of 100,000 

dollars.

The maximum business size is those 

businesses with 38.5 million dollars in revenue 

or less would qualify for the program. And then 

they must document a 25 percent reduction in cash 

flow from March to August of this year compared 

to 2019. It's a lot to do. There's a ten-day 

application window here because unless something 

changes in Congress, all of those funds have to 

be spent by the end of the year. So they're 

going to be racing against the clock to get that

ball rolling.

From an employment standpoint, job 

postings are down about 5 percent from a year ago 

but have recovered quite a bit since May. So all 
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in all, I think we're doing okay. But like 

everyone else has said, there's just a lot of 

uncertainly what that means going forward.

What we've seen in the past, all of 

that support to the ag sector can disappear just 

as quickly as it was provided. And commodity 

prices have recovered back to above where they 

were pre-COVID. But those prices for the most 

part have been on a downward trend for several 

years, and there's been a fair amount of stress 

in that sector.

So far, our banks are well positioned. 

They're well capitalized. They've been building 

their allowances. But I think they're going to 

need all of that as we go into the next year and 

the next renewal season. But so far, so good, I 

guess would be the takeaway. Thank you for 

having me, and I will yield to the next speaker.

MEMBER COOPER: My name is Charles 

Cooper. I'm the Commissioner of the Texas 

Department of Banking, and I also thank you, 
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Chair McWilliams and your staff, for putting this 

program on today. Hopefully, this will be the 

beginning of many meetings in the future.

So we have 218 banks under our 

supervision with assets of 328 billion dollars. 

Generally speaking, our banks entered into the 

pandemic with solid financial metrics. Our 

number of problem banks, and we include those 

rated 3 in that number, is at a historical low. 

The average leverage ratio at March-31, it stayed 

at 10 and a half percent.

We did pause our normal examination 

process on March the 17th to focus on supporting 

our institutions. We resumed on June the 1st. 

Since then, we have conducted 44 examinations. 

And an analysis of those examinations indicate 

that our bankers have recognized the risk in 

their portfolio adequately.

All the portions of the bank 

examinations have been conducted offsite. We 

feel that we are obtaining the proper information 
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that is needed to do this, and a lot of this goes 

obviously to the bankers who are providing the 

information to our bank examiners that are 

working very hard on this process. I believe 

that our examiners are following the examiner 

guidance, and I also believe that this is a very 

important area that we have to continue to 

evaluate.

As others have mentioned, the economic 

stimulus package certainly had a positive impact 

on our economy. Our concerns obviously increase 

the longer the pandemic and the economic shutdown 

continue. Texas is more economically diverse 

than we've ever been before. So therefore, 

concentrations are down which is a good thing.

We continue to monitor the energy 

sector. While concentrations are down here, 

energy remains a very important driver of the 

economy. We are currently hovering around 40 

dollars a barrel for oil.

At this level, it's my opinion that 
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the industry can exist but cannot expand or hire 

back displaced workers. And again, this is 

obviously a general statement on my part. So to 

sum it up, Madam Chair, we remain on high alert, 

but we have cautious optimism. Thank you.

MEMBER GALLAGHER: Hi, good 

afternoon. My name is Mary Gallagher. I am the 

Commissioner of Banks for Massachusetts. It's 

my honor to have been invited to participate in 

this advisory committee, and I thank the FDIC and 

Chairman McWilliams.

As those assembled today have already 

articulated, the COVID-19 pandemic response has 

presented an opportunity for our community banks 

to really showcase the significant role that they 

play in our local cities and towns. In 

Massachusetts, COVID hit hard, early, and is 

still here with us. Mid-March feels like a very 

long time ago.

It remains fresh and yet I am still 

extremely impressed with the Massachusetts 
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community banking community who pivoted quickly 

to meet customer needs while balancing health and 

safety considerations for their customers and 

employees alike. Practically overnight, our 

depository institutions were providing relief 

within our communities through waived penalties 

and fees, proactive engagement with borrowers, in 

many cases prior to the CARES Act and 

Massachusetts Chapter 65 emergency legislation. 

They have provided millions of dollars in 

contributions for COVID relief, including PPE 

efforts, addressing food insecurity, and 

vulnerable population.

And importantly for our local 

economies, to borrow a phrase from Chairman 

McWilliams at the recent Community Bank Research 

Conference, our community banks really punched 

above their weight in the rollout of the Payment 

Protection Program. COVID-19 is still very much 

present here in Massachusetts. And our public 

health experts have been clear that the disease 
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will remain with us until a reliable, safe, 

therapeutic treatment is available.

We are currently in Phase 3 of a fourstage reopening. It is undeniable that 

Massachusetts citizens and small businesses have 

made tremendous sacrifices, yet the reality 

remains that unemployment levels are still 

elevated and sectors of our local economy remain 

particularly vulnerable, including restaurants, 

hotels, hospitality as we've heard in other 

states as well. Over the past couple of months, 

our executive branch, legislature, judiciary, and 

community advocacy groups have worked 

collaboratively to review housing stability 

concerns associated with the pandemic.

Just this week, Governor Baker 

announced 171 million dollar eviction diversion 

strategy to provide direct aid to tenants while 

establishing court mediation and legal 

representation programs. Our state-level 

moratorium on evictions and foreclosures expires 
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this coming Saturday at which point the CDC's 

moratorium will kick in for Massachusetts 

residents. At yesterday's press conference, 

Governor Baker was asked whether a moratorium 

extension had been considered.

His response resonated with me as a 

financial regulator, because he noted that the 

longer the moratorium were to stay in place, the 

deeper the hole that we will all need to navigate. 

Certainly the pandemic's challenges and lasting 

impacts are not fully realized, yet we continue 

to hear from our banks that they remain committed 

to working with their customers on an individual 

basis as needed. While COVID and its economic 

impact will continue to dominate our regulatory 

conversations and examinations for the 

foreseeable future, I'd like to offer some nonCOVID updates on the banking landscape here in 

Massachusetts.

Massachusetts residents continue to 

have a great deal of choice when it comes to 
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financial services. Our financial service 

industry remains strong and quite competitive. 

Currently, we have 96 state-chartered banks 

ranging in size from 60 million to 13 billion 

plus a large global custodian.

Our agency also has authority over 55 

state-chartered credit unions and 10,000 

nondepository licensees. While competition and 

consumer choice abound and we continue to see 

nondepository licensee growth, the multi-year 

consolidation trend of our depository 

institutions remains in effect. We are averaging 

a half-dozen bank merger transactions annually.

As I know technology and innovation 

have been a focus at the FDIC, I am happy to share 

that there is active engagement in Massachusetts 

for a financial technology ecosystem to 

collaborate and establish critical partnerships

to leverage talent, research, and investment. 

And Massachusetts' fintech ecosystem includes 

participants across local government, higher 
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education, venture capital, incubators, 

entrepreneurial startups, and established 

industry, including our banking institutions.

The pandemic has created an 

environment of accelerated digitization and 

fertile ground for a fresh wave of innovation. 

Our banks who already embrace technology and/or 

collaborative efforts stand to excel. Of course, 

with technology, we certainly remain concerned 

about cyber risks.

Massachusetts is just one of a few 

states with its own CRA statute, and we continue 

to monitor the federal agencies’ approach to

Community Reinvestment Act reform. As our 

society starts to grapple with the 

disproportionate impact COVID is having on lowerincome communities, it follows that banks and us 

as the regulators will want to highlight the CRA 

efforts our community banks are making in lowto-moderate income neighborhoods. Even more 

broadly, the national dialogue on social justice 
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issues has presented locally where we have 

witnessed several of our community banks leading 

in diversity and inclusion efforts within our 

community.

Some examples include apprenticeship 

programs in gateway cities, advisory efforts for 

women and minority-led small businesses, and PPP 

fee reinvestment back into our communities. I 

am pleased to see that diversity and inclusion is 

on this afternoon's agenda. And I share 

enthusiasm and commitment to ongoing dialogue in 

this space.

Finally, as we are in the business of 

examining risks and our regulated entities are in 

the business of managing risk, I'd like to posit 

for future consideration the increasing risk that 

climate events may have for our banks and their 

portfolios. Many of our community banks already 

consider climate as a systemic risk. As a New 

England state, we see hurricanes, blizzards, 

flooding, drought.
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Senior leadership from our agency 

recently had the opportunity to meet a Boston 

headquartered think tank called the Ceres 

Accelerator for Sustainable Capital Markets to 

discuss their June 2020 report entitled, 

Addressing Climate as a Systemic Risk: A Call to 

Action for U.S. Financial Regulators. I'd be 

curious how the FDIC and our other federal and 

state regulatory colleagues might view climate 

risks for our banks and welcome additional 

education, awareness, and dialogue as we consider 

this portfolio risk for our regulated entities.

Thank you for this opportunity to 

provide some thoughts from Massachusetts. Our 

collaboration as regulators and our ability to 

communicate effectively and transparently with 

industry remains essential in the months and 

years ahead. We as the regulators have urged our 

institutions to work with their customers and 

provide relief according to our state and federal 

emergency legislation. Our banks naturally are 
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concerned as to how we as their regulators will 

examine them in the months and years ahead. We 

have been consistent in our local messaging that 

any prudent steps by our regulated entities to 

assist customers will not be met with criticism 

by the Division of Banks.

In closing, I just want to echo some 

earlier remarks and express a special shout out 

to the FDIC's northeast region. At the onset of 

the health pandemic, Frank Hughes and his team 

set up standing calls among the northeastern 

states and our federal counterparts where the 

collaboration and information sharing on a 

regional level has been outstanding. These 

interagency relationships certainly predate the 

current crisis but nonetheless showcase the 

importance of collaboration between fellow state 

banking departments, the FDIC, Federal Reserve, 

OCC, and CFPB. Thank you very much.

MEMBER LEARY: Good afternoon. I'm 

Edward Leary, the Utah Commissioner of Financial 
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Institutions. I thank Chair McWilliams and 

Director Gruenberg for this opportunity to 

address the committee and to provide insight from 

Utah, Utah banking.

I think generally the statement would 

be Utah banks are doing well. Utah bankers have 

responded very effectively to the pandemic crisis 

and have worked aggressively also in the PPP loan 

area, getting it out to the small businesses in 

our state. I would tell you if there's a concern 

I'm hearing today, it is probably dealing with 

the forgiveness process of those PPP loans and 

what the parameters are.

I thought of a number of the areas I'd 

like to address. Ironically, Mary already 

addressed to some degree, but I'd like to put the 

Utah spin on some of it. The Utah tourism 

industry this summer did very, very well to the 

point that I would use the phrase the Utah 

national parks were almost loved to death this 

past summer. But it does come at a price. And 
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as Governor Herbert has mentioned many, many 

times, it's the balance between propping up and 

maintaining an economy and trying to protect the 

individuals within the state.

Utah has seen a significant increase 

in COVID cases recently. The governor yesterday 

announced a change to a county-by-county risk 

profile system based upon cases per population. 

Utah has also suffered under what we would call 

climate issues this summer.

During the pandemic, the weather and 

natural disasters have dramatically affected Utah 

from a strong earthquake at the very beginning of 

the pandemic, sustained strong hurricane force 

winds that caused damage and toppled thousands of 

trees, to fires burning in Utah and for that 

matter throughout the West and the resultant poor 

air quality from those days of the fire. In a 

humorous attempt, it seems that every fire in 

California causes bad air or smoky air in Utah. 

And I want to convey the environmental concerns 
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are also affecting everyday life, banking in 

Utah, and it's not just the pandemic.

I'd like to mention that the Utah 

economy is doing relatively well, in fact, better 

than expected, up through and including the 

state's current unemployment rate is 4.1 percent, 

one of the best, if not the best in the country. 

My people wanted me to also pay tribute to 

Chairman and indicate that thank you for your 

transparency initiative. In our experience, we 

see dramatic improvement in the way the FDIC is 

processing applications.

Utah has 35 state-chartered banks for 

total assets of about 348 billion. A couple of 

these following comments I'd like to make are 

probably more relative to the supervision process 

than to banking conditions, per se. But as Mary 

mentioned, a few weeks ago, the Federal Reserve 

released an ANPR on its approach to modernizing 

regulations that implement the CRA.

In the summer, the OCC released its 
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final rule on CRA. The FDIC started down the 

road but has not gone further. The appeal would 

be to all that can harmonize and standardize the 

various approaches between the federal banking 

agencies.

It’s my view the CRA desperately needs 

to be modernized. However, we would not want a 

bifurcated regulatory standards that could 

disadvantage state-chartered institutions. 

Also, while it may not be in the arena of the 

regulators -- federal banking regulators, of 

concern to Utah is also the congressional passage 

of the Bank Service Company Examination Act, 

S.4154. It's important to us as one of the 

states that perform and conduct bank service 

company exams jointly with the federal banking 

agencies.

Finally, I'd like to mention we have 

been fortunate we are able to hire new examiners. 

Testing and interviews virtually is difficult, 

but we have performed them. We are looking to 
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onboarding.

We believe that also would be 

difficult but doable. But so much of a newly 

hired examiner’s ability to understand the job of 

bank supervision comes through on-the-job 

training. As we onboard new examiners in the age 

of COVID, we are concerned about the absence of 

that in-room or on-the-job training knowledge 

transfer to the new examiners. If the FDIC has 

any insights, tips, or strategy for ensuring new 

hires have a good experience while getting up to 

speed, we would love to hear them.

Thanks again for this opportunity to 

comment. As others have done, I cannot 

compliment Kathy Moe and the western regional 

office and staff for what they've done to work 

with us throughout these trying times. Thank you 

all.

MEMBER FITE: Great. Thank you, and 

I'm up next, Tom Fite, the Director of the Indiana 

Department of Financial Institutions. Like many 
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before me, I first want to say thank you for 

forming this advisory committee and I'm obviously 

thrilled to be a part of it.

I'm going 13th, I guess, on the list 

means a lot of things have already been said. So 

I'm going to refrain from doing much reiteration. 

But maybe what I'll do is provide just some local 

flavor around maybe what's happened in Indiana 

and give you a few examples.

And I think I'll start by talking 

about a little town called Elkhart, Indiana. In 

the last recession -- so you probably wouldn't 

remember. Elkhart, Indiana is a small town in 

Indiana. But in the last recession, the 

President actually came to Elkhart a few times 

and spoke about the unemployment situation in 

Elkhart. And at that time, Elkhart was 

approaching 20 percent unemployment.

And it's ironic and I think it shows 

how different maybe a pandemic-driven recession 

is when at this point in time actually in Indiana, 
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Elkhart is a bright spot and actually have solid 

employment there. And in fact, they're 

struggling to find enough workers. And the 

reason is because Elkhart is big into 

manufacturing of recreational equipment and RVs. 

So I think it's an interesting story.

Maybe going back to what Melanie said 

about Montana when you see certain industries 

like travel doing really well. And in Indiana, 

you see that through this RV area prospering 

when, in fact, other areas are really struggling. 

So I think it's an interesting example maybe of 

how this pandemic-driven recession is very 

different from the last recession and one example 

in Indiana where that's really showing it as a 

strong point.

The second area I would talk about 

maybe is housing, and Indiana and the rest of the 

country as well, housing is very strong. And 

we're even for the first time maybe in many 

generations seeing price increases in Indiana 
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through housing, again, showing maybe where a 

pandemic-driven recession maybe is different from 

other recessions we've seen before. What's not 

faring so well, though, is in downtown 

Indianapolis.

And I know many of you wouldn't see 

maybe Indiana as necessarily a tourist 

destination. But what we do have, though, is 

really strong business travel in that we have one 

of the largest convention centers in the country. 

And that's sitting empty obviously since March. 

It's been a huge impact to central Indiana, the 

Indianapolis area and to the business travel we 

would see in Indiana typically and the money that 

brings into our state.

Talking to our bankers and our 

examiners, there seems to be at this point in 

time a bit of a split occurring with asset 

quality. And let me describe just a little bit. 

What we're seeing I think is that the businesses 

that were COVID impacted are now kind of taking 
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one of two paths.

In the first path, the happy path, is 

that many of them are actually recovering and are 

generating enough cash flow to be able to make 

their payments. And that's been obviously great 

for us and great for our economy in Indiana. 

However, there is also another segment out there, 

though, of those COVID-impacted businesses that 

are still struggling and haven't maybe yet 

recovered to make their full payments.

And we're hearing from bankers and 

industry community alike that come year end, when 

a lot of the -- maybe the benefits that banks 

have received and provides their customers, to

work with their customers, start to expire. And 

we're anticipating that could have a pretty 

significant impact upon the banking industry 

obviously in the first and second quarters of 

next year. So that's something we're definitely 

watching for in Indiana again but also I think 

all across the country.
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Speaking maybe of the industries 

obviously that we're all talking about, a few 

weeks ago, a story came out in Indiana mentioning 

that about 40 percent of Indiana restaurants are 

at exposure to be failed within the next six 

months. Obviously, that would be a very huge and 

devastational impact to the local marketplace. 

But then also the next week, 50 percent of the 

hotels seem to have the same possible outcome. 

So obviously looking at 40 percent of restaurants 

in Indiana, 50 percent of hotels being possibly 

failing in the next six months is pretty bleak.

What we're seeing, though, within that 

is just as I mentioned before kind of depends 

upon the business you're in and the area you're 

in. Here too it's very much pocketed in that 

some restaurants actually are doing very well 

depending upon location and whether or not 

they're around locations people feel comfortable 

going out and the same thing with hotels. 

Hotels, based on the location, some of them are 
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actually seeing good occupancy, while others stay 

completely empty.

I'll end maybe with just one more 

point. And we focus so much right now on asset 

quality and as we probably should. Obviously, 

this is what we're dealing with first and 

foremost in all of our states and across the 

country.

But we also have a second risk that I 

think we need to keep our eye on, and this has 

been subject to a lot of discussion in Indiana 

with some bankers I've talked to the last many 

weeks. And that risk is interest rate risk. 

Obviously, with rates being so low and staying 

low for that matter for quite a while but even 

more low now, I'm hearing banks out there 

struggling to find loans above 3 percent in a 10-

year category for commercial real estate owneroccupied which obviously is a very low level of 

lending to think you can sustain profitability at 

a bank long term.
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So I would just mention there that 

we've got to remain very focused on asset quality 

and get through the short term but not ignore 

that long term risk on the interest rate risk 

side maybe with locking into low rates as the 

bankers are at this point in time. So that 

concludes my report for Indiana, and I think I'll 

pass it along to the next speaker. Thank you.

MEMBER THOMPSON: Hi, this is Mick 

Thompson, state bank commissioner in Oklahoma. 

It's good being fourteenth like Tom said because 

most everything has already been covered. But 

I'll give you a few highlights, kind of what's 

going on.

First of all, I want to continue 

saying that we thank the Chairman for this 

opportunity and particularly the partnership that 

we have in Oklahoma with our Oklahoma City FDIC 

and Dallas FDIC. They've been very cooperative 

and work very well together, as I said, in a 

partnership. Our state budget is suffering. 
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We're going to have a deficit probably this year 

because of the oil and gas production and our 

sales tax requirement. They both seem to be 

rebounding. But by the time session starts, 

we're going to have -- the state is going have 

issues.

The department, we're very strong. 

We just gave all of our employees a bonus. 

They're done so well under this circumstance. 

And then we will continue with our rebate program 

back at the banks. So we'll give them a 

percentage of their assessments back probably 

somewhere between 10 and 20 percent this year.

As far as the coronavirus in Oklahoma, 

we've had a surge lately. And I know that 

yesterday in Oklahoma City, all the ICU beds were 

full. I don't really know what's causing that 

except to say maybe football season in Oklahoma 

causes a lot of that.

The department plans, we're currently 

in a reopening plan of our office. Our lobby is 
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still closed, by appointment only. We're 

bringing in a select crew so we don't have a lot 

-- we can have a lot of social distancing. And 

our examinations are still done all remote and 

it's been surprising how well we've done that.

Again, I want to commend the FDIC for 

their work with us on that because we're on 

schedule. We'll have all of our banks done that 

were scheduled for this year by the end of the 

year. Bank conditions, it's like Kevin said that 

we don't really know. There's no issues at this 

point. But I think when the free money runs out, 

then the second, third quarter of next year, 

we're going to be able to tell really what the 

true picture is.

And we use the Oklahoma CARES Act to 

fund the businesses much like Commissioner Hall 

talked about. Probably the main focus that we 

changed, we went 25 percent rather than 15. And 

we were able to help -- the banking department 

and the bankers association was very involved 
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with the Department of Commerce in the building 

of that program. And we helped over 4,000 small 

businesses. That was our target was small 

businesses and not the corporate firms.

So with that, pretty much everything 

else has been covered. Banking industry in 

Oklahoma is strong. Banking department is 

strong. I think the new norm is going to be 

we're going to do a smaller footprint with state 

government and more and more telework and more 

remote exam. And with that, that concludes my 

remarks.

MR. DAVIS: Great. Thank you to all 

of you for your observations. In the interest 

of time, I'm going to now turn it over to Shayna 

and Camille.

MS. OLESIUK: Great. Thank you very 

much, Chad. So my name is Shayna Olesiuk. I am 

the associate director for our national and 

regional risk analysis group. So I will spend 

my time today talking about some of our 
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observations, both on the national and the 

regional economic conditions. And then I'll turn 

it over to Camille to talk about some of the 

banking trends that we're seeing.

Overall, I agree with what many of you 

have said, that while we have been through 

several months of trends unfolding, there's still 

quite a lot of uncertainty. And I think that 

underscores a lot of what I see in the economy 

right now. So I'll start with employment and 

similar themes to what many of you have already 

talked about.

As of September, the national economy 

has recovered just about half of all the jobs 

that were lost which is great progress but still 

quite a ways to go until things recover -- recover 

fully, that is. The gains have been recorded 

across several sectors. Many of the hardest hit 

sectors, the tourism industry and retail trade is 

where we have seen a lot of the gains.

However, those sectors and most 
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sectors in the economy still remain in a net 

negative position from the pre-pandemic levels. 

And I think one of the most concerning parts to 

me is the fact that we have seen a slowdown in 

the pace of job growth. So I think a lot of the 

early gains of businesses reopening during the 

summer helped our job growth, and now we're sort 

of seeing a leveling off and not a lot of drivers 

in sight to recover those remaining jobs.

One of the sources that we look to for 

this data is the New York Fed's weekly economic 

index. And obviously this has the benefit of 

being weekly data. And that index also includes 

a lot of different data points. But it too shows 

that the pace of recovery is slowing.

On the unemployment front, a similar 

story to what many of you have talked about. We 

peaked back in April at an unemployment rate of 

about 15 percent, and now we're down to below 8 

percent, 7.9 percent. All of the regions of the 

country were hard hit, especially during April 
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was the peak for most regions. And the levels 

have come down, although still remain elevated, 

especially in the northeast and the west where a 

lot of the hard hit industries are headquartered.

Another concerning point about the 

unemployment trends is the share of people 

indicating that their That accounted for the 

majority of unemployed people earlier in the 

summer. And we've seen a reversal of that trend. 

And now many of the unemployed people are 

indicating that their unemployment is permanent. 

So that, I think, is another indication of still 

quite a lot of concern.

Looking at the recession and where we 

stand with that data, some economists say that 

the recession once we get third quarter data, 

that data will show that the recession is over. 

We're looking at forecasts of significant GDP 

growth in third quarter. However, it's important 

to remember the hole that was created in the first 

part of the year. And despite those large growth 
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numbers in GDP, we're still in a negative 

position for the year.

We do not do our own economic 

forecasts, but we do rely on the blue chip 

economic forecast, the consensus forecast that 

comes from that source. And while forecasts have 

been improving over the last several months, the 

forecast for the year -- the consensus forecast 

for the year is for -4.6 percent GDP growth. So 

certainly improved from earlier this summer but 

still not a good number for the full year.

And one of the biggest drivers of this 

and I think several of you touched on this. In 

a typical recession, we see durable and 

nondurable goods taking the brunt of the hit. 

This time, it's been different.

Durable goods and nondurable goods, 

spending in those areas are actually up from prepandemic levels. And spending on services is 

what is holding GDP down. This makes a lot of 

sense because if you think about a lot of the 
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spending that families and businesses have done 

recently, a lot of it is for goods to work from 

home or have school from home and less spending 

on services and entertainment, things in those 

categories.

Next, I'll talk about some specific 

industry and credit conditions. And I'm happy 

to say that many of these also overlap with what 

some of the state commissioners brought out. 

First, commercial real estate, we've seen a 

deterioration in demand for all types of 

commercial real estate.

We look at five different segments, 

retail, hotel, office, multifamily, and 

industrial. And the biggest and hardest hit has 

been retail and hotel, then office, multifamily, 

and finally industrial. Some parts of industrial 

with all of the online shopping and need for 

warehouse space, some parts of industrial have 

actually benefitted. But for the most part, the 

economic drivers for commercial real estate have 
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been moving in a negative direction with 

increasing vacancy rates and declining rents.

We've done some comparisons to what we 

saw with commercial real estate during the 

financial crisis compared to what we've seen in 

the last couple of quarters. Currently, data 

that we use from CoStar shows that property 

prices are down about 5 percent from pre-pandemic 

levels. And CoStar's expectation says that these 

prices will continue to fall over the next 

several quarters.

But this is not as bad as what we saw 

during the financial crisis. Of course, there's 

still a lot to be learned. And the uncertainty 

that we all know is out there, these forecasts 

could be revised downward. But so far, they 

don't look as bad as the financial crisis.

And next, agriculture, many of you 

also referenced agriculture as an area of 

concern. It's an area of concern for us as well. 

Agriculture, the industry entered this pandemic 
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in a stressed situation. But banks remain very 

resilient. So I agree with the comments that you 

mentioned in that area.

And I think it was the Commissioner of 

South Dakota who mentioned the government 

payments. That has definitely been a factor that 

has boosted the agriculture industry. And 

despite the declines in net farm income that are 

expected this year, the government payments are 

making up for much of that decline. Also, the 

stability in farmland values continue to support 

the agriculture industry.

Finally, there's -- I would add energy 

to the list. And with the energy sector, there's 

in some states and regions overlapping risks 

between agriculture and energy, especially with 

demand for fuel and the ethanol industry and corn 

producers, especially earlier in the summer. 

Although energy demand, especially for gasoline, 

has been fairly resilient this summer as car 

travel has been preferred.
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And jet fuel is a different story with 

the declines in airline travel. But energy 

demand for gasoline has remained fairly 

resilient. So with that, I will turn it over to 

Camille to talk through the banking trends.

MS. SCHMIDT: Thank you, Shayna. 

Today, I want to just briefly review some bank 

trends from the second quarter 2020. And then 

I'll touch on some select examination trends that 

we've seen in our review of reports of 

examination.

First, from second quarter of 2020, as 

Tom from Indiana alluded to, low interest rates. 

They really pressured net interest margins in the 

first half of 2020. The average net interest 

margin for the banking industry was at a record 

low in the second quarter.

Second, the continuation of weak 

economic activity resulted in significantly 

higher provision expenses. And this was noted 

for both banks that had adopted the CECL
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accounting standard as well as for those that 

have not. Third, we saw PPP loan growth in the 

second quarter. This was significant, and it was 

especially true in the community bank sector.

Tom from Indiana also said and I would 

reiterate, the big question that remains is asset 

quality. And we're really interested to see what 

will happen when the deferral periods end. So I 

know we're all anxious to see third quarter Call 

Report results come out in November.

There's some slides that you can see 

here. I can (audio interference). The CRErelated supervisory recommendations that we've 

observed tend to be related mainly to Board and 

management oversight. We see recommendations 

that often pertain to concentration limits in 

policies or weak strategic planning.

Portfolio sensitivity analysis is 

another area we see more recommendations. These 

are usually focused on the process itself like 

the process being perhaps in its infancy or weak 
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analysis of the results. Portfolio management 

recommendations also occur, and these are more 

commonly pertained to monitoring concentrations 

or contingency planning.

So we didn't see as many supervisory 

recommendations related to funding strategy or 

credit underwriting. However, when we did see 

those, they were more often escalated to matters 

requiring Board attention or what we call MRBAs. 

That was true for -- I should mention for funding 

strategies.

And if you move to the next slide, 

while we're talking about MRBAs. Overall, MRBA 

occurrences have decreased at well-rated 

institutions over the past five years. In the 

first half of 2020, about a quarter of 

examinations included MRBAs.

Recommendations again centered around 

Board and management oversight. Corporate 

governance issues like policy concerns, audit, 

and Board oversight were the most common. Credit 
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and lending administration MRBA occurrences, 

while we see them, they do remain at manageable 

levels.

So that's what I have on banking 

trends and some of our select exam trends. I'd 

be glad to take any questions if there are any. 

All right.

MR. DAVIS: So I'm not seeing any 

hands raised at the moment. If anybody does have 

a question, it could be okay to just go ahead and 

jump in. I’ll allow a minute or two here to just 

see if anybody has a question.

MEMBER AFDAHL: Say Chad, this is 

Bret, a question for Camille. I guess I'm 

curious on all the ag subsidy -- or maybe this 

one is for Shayna on the ag subsidy payments. I 

guess I've lost track of the percentage of the 

appropriated funds that have been distributed. 

Do you know where we're at as far as how much of 

the funds have been distributed to the ag sector 

to this point?
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MS. SCHMIDT: This is Camille. I'll 

take that. Bret, I've also lost track. The last 

I counted, I was looking it up yesterday. I 

could be wrong, but I think there's been about 37 

billion appropriated for the direct payment 

program to farmers.

Now I don't know how much of that has 

actually gone to farmers yet, what they've 

received. But my recent research yesterday, I 

think it's up to about 37 billion in total direct 

payments. Does that answer the question?

MEMBER AFDAHL: Yeah, I mean, I think 

it just points to another layer of uncertainty. 

I've tried to find that kind of information. 

It's eluding me to this point, but I just was 

curious if anybody else had a better handle on 

it. Thank you.

MS. SCHMIDT: Bret, I'll look into 

that and try to get that to you. It is further 

hard to get it broken down by just what ag sector 

it goes to, whether it's soybeans.
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MEMBER AFDAHL: Yeah, absolutely. 

CFAB 1 and 2 have been dramatically different in 

which specific commodity was the winner, so to 

speak. So I agree on that. Thank you.

MR. DAVIS: Great. Thanks, Bret. 

Anybody else, questions, comments, additional 

thoughts that may have come up?

(No audible response.)

MR. DAVIS: Okay. Hearing none, we 

are now scheduled to take a short break. We had 

had this scheduled for 15 minutes. We're about 

5 minutes ahead of schedule.

So why don't we just plan to be back 

here at 3:00. I expect probably had some emails 

pile up. So if everyone could come back at 3:00, 

we'll get started with the next item on the agenda 

which is community bank consolidation. So thank 

you. See you at 3:00.

(Whereupon, the above-entitled matter 

went off the record at 2:38 p.m. and resumed at 

3:02 p.m.)
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MR. DAVIS: OK -- I hope everyone has 

made it back. We're about ready to get started 

with the next session.

This afternoon we have a presentation 

on Community Bank Consolidation. From the 

Division of Insurance and Research, we have 

George French, a corporate expert and senior 

advisor, and Jon Pogach, Chief of Financial 

Modeling and Research Section. Jon and George, 

please take it away.

MR. FRENCH: Thank you very much, 

Chad. This is George starting out. Good 

afternoon, everyone.

I'm going to, for my part of this, I'm 

going to cover some basic information about bank 

consolidation and branching. And if we could, 

go to the next slide please, Mike.

I'm going to start out just by 

reminding everybody that bank consolidation is a 

long-term trend with no single cause. You can 

see we had 18,000 banks and thrifts in 1984. 
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We're down to a little over 5,000 today.

The number of charters on this graph 

reflects both exit from the banking industry and 

entry into the industry. I'm going to cover both 

of those topics.

First, I'd like to explain that the 

term community bank that is used in these slides 

refers to an FDIC research definition, which does 

not focus solely on asset size, but it's intended 

to identify banks that both take deposits and 

make loans within a limited geographic area. If 

we could go to the next slide.

This points out that the rate of 

attrition or consolidation since the crisis has 

actually not been as fast for community banks as 

it has been for non-community banks.

You can see here that about 30 percent 

of the community banks in existence in 2011 have 

closed since that time versus about 36 percent of 

the non-community banks.

An important difference, though, is 
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that community banks are more likely to be 

acquired by unaffiliated companies, which is the 

gold area on the left, as compared to noncommunity banks where when they close, they're 

more likely to be within-company mergers. So 

let's go to the next slide.

This basically gives us an idea of who 

is acquiring whom. It shows you that, by number,

most community banks are acquired by other 

community banks. About two-thirds of all 

community bank acquisitions are by other 

community banks.

For the very smallest community banks 

with less than 100 million of assets, almost 90 

percent of those acquisitions are by other 

community banks.

Of course, the opposite is also true. 

The larger community banks, a billion and up, 

over 80 percent of those acquisitions are by noncommunity banks. Why don't we go to the next 

slide?
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So this tracks the exit rates of 

community banks, the bold line, in particular. 

The dotted line, for some reason, the legend 

didn't show up. That's non-community banks.

But community banks are exiting the 

banking industry faster than they have since 1984 

in recent years. This is a particular type of 

exit by acquisition by an unaffiliated 

institution or a self-liquidation, which seems to 

reflect a decision by an independent organization 

that it no longer wishes to be independent.

So, you know, the question is why 

(audio gap) an environment more challenging to 

make money for banks. And then, of course, 

there's the idea that the efficient size of a 

bank is sort of increasing over time as a result 

of a number of factors. But in any event, the 

exit rate of community banks is increasing.

So now let's turn to the entry part of 

the equation. Go to the next slide.

So probably many of you have seen a 
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chart that looks like this. It displays the 

significant decrease in entry into the industry 

since the crisis. You know, the question is,

“Why is this?” This is an area of speculation 

for many people.

Some Federal Reserve economists did a 

paper that suggested that about 75 percent of 

this reduction in chartering can be explained by 

economic factors. They focus particularly on the 

low and flat interest rate environment.

Of course, there's likely other 

factors at work as well. And one might think 

that some of the factors that would inhibit entry 

might be also some of the same factors that are 

encouraging more of the exit that we saw on the 

last slide. Why don't we go to the next slide?

So this is a look at the initial 

equity capital of new banks. So it's limited to 

de novo banks that have initial equity of less 

than 100 million, so really small de novos.

And over time what jumps out at you is 
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that the capital required to start a new bank or 

the initial capital as of the first Call Report 

has significantly increased since the crisis. 

These are averages, by the way. And there's not 

as many of the banks, obviously, in the postcrisis period as there were in the pre-crisis 

period.

But I think the takeaway from this, 

one reasonable takeaway might be that the 

proponents are just coming and looking to start 

a typically larger bank than they did in the past. 

That initial equity is the amount needed to 

support the size of the new bank that you're 

projecting to have.

So it's possible, again, similar to 

that exit chart, that this may be reflecting some 

increase in the efficient (audio gap) of activity 

going on. So we'll how this plays out over time.

Let's look at branching for a couple 

of minutes. Turn to the next slide.

So, to give you a little background, 
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the largest number of branches of U.S. banks was 

back in 2009, just under 100,000. It's now down 

to about 85,000.

And this map, which goes back to 2012, 

shows that the reductions in branching and the 

number of branches are happening all over the 

country.

If you'd been reading your FDIC 

Quarterly, you know that the banks that are more 

likely, have closed branches more frequently are 

those in counties with declining population, 

banks with higher premises expense, and banks 

that acquired other banks, since acquirers tend 

to close branches more frequently than nonacquirers.

It's not evident from this map, but 

it's also true that most of the closures of 

branches by number and more in percentage terms 

are in metropolitan counties, just because that's 

where most of the branches are.

But you can see from the map that 
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there's also branch closures in rural counties 

all over the country. And even though they're 

more, less frequent in rural areas, they probably 

are more keenly felt there since, you know, 

there's fewer branches there, and the closure of 

one may really affect how far you have to travel 

to get to another branch.

Let me turn, let's turn to the last 

slide of mine. So this slide illustrates that 

branch closures may be contributing to a limited, 

a more limited availability of banking services, 

at least in some places.

For context, there's 3,145 U.S. 

counties. Half of them have ten branches or 

more. Half have ten branches or less.

So branches with no offices or one 

office is, or counties with one office, no 

offices are sort of outliers in a way. So there 

are 134 counties with one bank office, 34 with no 

bank offices as of 2020. Now, and this is an 

increase.
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So, for 121 of the 168, this is sort 

of business as usual. They have now what they 

had before.

For 46 of them, they've actually seen 

reductions in branches, in some cases 

considerable reductions. You can see in the 

footnote some of the counties went from three, 

four, or five offices in 2012 down to only one in 

2020.

So what's going on with these 

counties? I looked at the Wikipedia pages for 

them, just skimmed over them. They're mostly in 

mountainous areas out west, Alaska, a number in 

the northern Great Plains, and quite a few in the 

south, the rural south.

Many of the counties are sparsely 

populated, have a lot of land, so very low 

population densities.

But others are not like that. So, for 

example, there are two counties with populations 

over 20,000 where the number of branches went 
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from five down to one and from three down to one. 

So (audio gap).

MR. DAVIS: George, we seem to be 

having trouble with your audio -- Jon, perhaps 

you should --

MR. FRENCH: -- poverty --

MR. DAVIS: -- jump in. Oh, there we

go.

MR. FRENCH: So, in any case, given 

the importance of bank branches to many 

depositors and small businesses, these trends 

certainly bear watching.

And more broadly speaking, the 

interrelationship between banks and the local 

economies is a topic of importance.

And that is a point that brings us to 

the next part of the presentation, which deals 

with issues about that. So that's my part of it.

MR. POGACH: Great. Thank you. All 

right. So I'm Jon Pogach. I'm going to first 

present some research that I've done with some 
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colleagues here, a colleague here at the FDIC and 

at the CFPB.

I want to thank you all for taking the 

time to listen to me. It's a nice opportunity 

to put on a jacket and clothes like a real human. 

So next slide.

All right. So first I have to say 

that these views are mine alone and do not 

necessarily represent those of the FDIC, the 

CFPB, or my co-authors, or the United States. 

Slide.

So the paper that we wrote is really 

motivated by this graph. And what this graph 

shows us is the share of deposits held at small 

banks and the share of employees that are 

employed at small firms in the United States over 

the beginning of the century. So that's early 

2000s until 2017 is when this study ends.

So the red line shows us the share of 

deposits at small banks, which for the purposes 

of this paper were defined as a billion dollars 
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or less in real dollars. And small firms for the 

purpose of this paper are 250 employees or less, 

for reasons we discuss in the paper.

So, if you look at the red line, which 

shows the share of small, deposits held at small 

banks, that's been in pretty continuous decline 

over the course of this time period.

If you look at the share of employees 

that are employed at small firms, that rises at 

the beginning of the turn of the century, and 

then has seen a pretty continuous decline 

downward from about 2004.

So really the purpose of the paper is 

to try and understand these two trends. And we 

can only imagine what these two numbers are going 

to look like over the next few years of data as 

they come in as we think about the COVID pandemic 

and the associated government response and how 

that's going to affect small business shares of 

employment and small bank shares. Next slide.

So, if you think about those two 
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graphs simultaneously in the context of the 

literature, the narrative is typically something 

along the lines of the following.

While there's consolidation of the 

banking system, we can think of this as maybe 

being driven by regulatory changes or 

technological changes.

Small banks, we know from the 

literature and I'm sure all of you have this view 

also, is that small banks tend to have a 

comparative advantage in lending to small 

businesses.

So what we get from those two graphs 

or those two pieces of information when we think 

about those graphs, the common narrative from the 

literature is, well, there's consolidation coming 

from the banking industry, and this is causing 

small banks to exit.

And this is then going to be 

restricting the supply of credit to small firms 

and potentially an issue for small businesses in 
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the U.S. economy. Next slide.

So the sort of simple version of this 

story, in a picture, we could imagine that we 

have a county somewhere with small firms and 

small banks paired together in relationship, 

lending relationships.

And then outside of this county, we 

have national firms. And national firms get 

their credit from national banks, or they may get 

it from credit markets or elsewhere. Next slide.

The way that the literature typically 

thinks about those two lines at the beginning was 

that a national bank might take over a smaller 

bank or might push them out of business in some 

way. And that severs the relationship that the 

small bank had with the small firm. And then 

what happens to the small business credit for the 

small firm? And what are the implications for 

the economy? Next slide.

What we do in our paper is to say, 

well, maybe that's true. We don't say that that 
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direction isn't happening. But maybe it's also 

going the other way.

So there is a number of papers in the 

economics and finance literature that talk about 

the consolidation of the real economy.

We can think of this as also coming 

from technological advances. If you think about 

the expansion of Walmart through changes in 

supply chain management, if you think about 

regulatory changes, for example, antitrust 

prosecution in the United States over the last 

couple decades, these might be contributing to 

the consolidation of real industry.

And if we think about small banks' 

primary customers as being small businesses, 

maybe what's happening is that there's a loss of 

small businesses driven by these other factors 

and this is affecting the viability of small 

banks who depended on those small firms as their 

customers.

I want to stress again that our 
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stories are not mutually exclusive. It could be 

that our story is true, that it's coming from the 

demand side, there's not as many small businesses 

that demand the services from small banks, while 

also coming from the supply side. There are real 

things that are happening to the banking industry 

that are also affecting the supply of credit.

And if we think about why this is 

important, as I said before, the pandemic, the 

economic recession that's associated with that, 

and then, of course, the government responses are 

all going to be feeding through the real 

businesses. Small businesses are affected by 

both the pandemic and the government response.

And these features of the economy are 

then going to help us understand how we might 

think the banking system is going to play out in 

the future. Next slide.

So, if you go back to that simple 

picture that I showed before, we have small firms 

and small banks that have relationships with one 
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another. Next slide.

What happens if instead what's 

happening is we have national firms pushing out 

small firms? Or, alternatively, what happens if 

we think about this as COVID? We just have small 

firms going out of business, severing the 

relationships that they have with the small 

banks. Next slide.

Really the question of our paper is 

what next for the small bank. Slide. And then 

slide.

So what we do in our paper is we try 

and estimate the effect of small business 

performance and small business growth on small 

bank performance using a couple data sets.

And the question that really lies at 

the heart of a lot of economic studies is how do 

we show what's driving what, how can we see that 

what's going on here is really that it's a demand 

side effect, that it's small businesses that are 

no longer demanding the services of small banks 
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versus something happening from the bank side. 

Next slide.

So the way that we do this is to say, 

well, let's look at some counties as of the year 

2000.

So there's my home county and my 

colleague, Stefan, my co-author, Stefan, who's on 

the paper. We come from two different counties. 

And our counties have different reliance on 

different industries.

My home county might rely more on 

health care and transportation, a little bit less 

on retail and manufacturing. Stefan's home 

county, on the other hand, relies a lot more on 

retail and manufacturing and less on health care 

and transportation.

That's as of the year 2000. Now, what 

if I told you that the small business trends in 

employment were really good for health care and 

transportation? Small businesses seem to do 

really well in those industries over the 
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subsequent 15 years, whereas retail and

manufacturing saw a big slump in small business 

employment over that time period.

What we would expect is that these 

national trends would mean that the demand for 

small business, small bank services coming from 

small businesses in my home county are going to 

increase, whereas the demand for small bank 

services coming from small businesses are more 

likely to decrease in Stefan's home county. 

Slide.

So the main findings that we have in 

our paper, using this is that a one percent 

decrease in small firm employment is associated 

with a .9 percent decrease in small bank deposit 

growth.

We also find that it's associated with 

decreases in small bank income, small bank, small 

commercial lending. We find a smaller, less 

robust effect on real estate lending. We find 

that this is largely coming through increases in 
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provisions.

And we don't find that large bank 

deposit growth is affected by changes in small 

firm employment. We also don't find that large 

firm employment seems to be driving anything on 

small banks, which is consistent with our 

narrative. Slide.

So what drives our findings? So why 

is it that we're seeing these small banks' 

deposits decreasing?

Well, we can think of a few different 

explanations. And some of the explanations that 

we explore in the current version of the paper 

are maybe these banks, because they're losing 

small business customers, are more likely to be 

acquired. Maybe they're more likely to look to 

acquire another bank to capture the fact that 

they need to be of larger scale. Or maybe 

they're more likely to fail. Slide.

So what we find in the paper is that 

it's really coming from the likelihood of being 
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acquired. So where we see more small business 

growth, according to our measure, where we're 

expecting to see more small business growth, 

that's where small banks are the least likely to 

be acquired.

And, conversely, where we see the, 

those counties that are likely to have the least 

amount of small business growth are where small 

banks are most likely to be acquired. Slide.

So the conclusion is that the 

composition of the banking industry really is 

going to depend at least in part -- this is almost 

teleological. This is obvious when you say it, 

that it's likely to depend on the composition of 

the real economy.

So, if you think about the existing 

literature, there's really then a feedback loop 

between what's happening to the consolidation of 

small industry and what's happening in the 

consolidation of small banks. So one is driving 

the other and back and forth.
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And then one of the things going 

forward, the evolution structure of the structure 

of the banking industry is going to depend on the 

evolution of the small, the structure of the 

small, American small businesses in general.

And if you think about policies 

affecting small businesses or small banks, these 

things are also very interdependent. So policies 

that are going to affect small banks are only 

going to be as effective as what's going on in 

the real economy with small businesses. Slide.

So one other thing that I was asked to 

discuss is, unrelated to the paper, is the 2020 

Academic Challenge, which has recently been 

launched. We're very excited.

And what the Academic Challenge is –

it’s bringing real-world policy banking 

questions to the classroom, to undergraduates in 

particular.

The question that we're asking 

undergraduates for the first-ever challenge is to 
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try and understand the effects of community banks 

on local economic development.

So it's a nationwide competition for 

four to five undergraduate students. It's going 

to consist of two rounds.

So the first round is going to be a 

written component where submissions are going to 

be six pages of text and then accompanying 

graphics and tables. And that is going to -- the 

submission due date is November 20, 2020.

Then we're going to review those 

submissions and choose the best submissions. And 

the top five teams are going to be invited for a 

finalist presentation in April of 2021 to 

Washington, D.C. hopefully in person, virtually 

if that can't happen.

And we also provide the students with 

a data set and some prompts to really help them 

engage with the material and try and understand 

the effect of community banks on local economic 

development.
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So that is it for my presentation. 

And I thank you all for your attention.

MR. DAVIS: Okay. Thank you. I will 

now open the floor for questions. Please let us 

know if you have a question and thoughts, 

comments.

MEMBER AFDAHL: Chad, this is Bret 

again. I got maybe two, one to George. Do you 

have -- is the map, the branch location, open, 

close, is that map available on your website? I 

was just wondering if we're able to take a more 

state-specific look at that to get a better view 

of the individual counties.

And then to Jon, I'm curious. You 

know, we've seen anecdotally ag operations grow 

much more quickly than, or ag banks can grow their 

capital and lending limit. And I'm just curious 

if there's a potential research opportunity 

there.

I'm not sure how good the data is down 

to that level. And there's other reasons, you 
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know, ag operations leave a specific bank. They 

can be going to Farm Credit for a better rate or 

something, too.

But I was just curious if there, your 

thoughts if there is any possible (audio 

interference).

MR. FRENCH: Bret, this is George. 

The sound cut off while you were asking your 

question to me. I just heard the end where you 

said that's for George. And the next one was for 

Jon. So, if you want to repeat it, I'd be glad 

to answer it, or Jon can answer his.

MEMBER AFDAHL: Sure. I was just 

curious if the map is available on your website 

so we could get more of a state-specific look to 

see individual counties on the change in branch 

locations.

MR. FRENCH: I think we can talk about 

getting that available. I don't think that 

particular map is up there anywhere. We may have 

an earlier version somewhere. But that's a good 
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idea.

MR. POGACH: And as for ag banks, 

truth be told, we actually started thinking about 

this in the context of ag. And there is some 

interesting information from the Kansas City 

Federal Reserve that talked about ag banks and 

the consolidation of farms and whether small ag 

banks could keep lending as farms consolidated, 

which was, actually one of the motivating quotes 

is in the paper.

The data is really interesting there. 

And I think that there's a lot to do, that can be 

done with ag banks. We didn't do it in this 

paper, but it's an interesting point.

I will point out that consolidation in 

the context of the paper isn't, as George pointed 

out, isn't necessarily super large banks taking 

over small banks.

It's really do those small banks --

can they continue to exist in a consolidating 

economy? Even if it's going from, you know, 750 
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million to 2 billion in the context of our paper, 

that's no longer a small bank.

MR. DAVIS: So I don't see --

MR. POGACH: I hope that answers your 

question.

MEMBER RYAN: Chad, John Ryan.

MR. DAVIS: Yeah, go ahead.

MEMBER RYAN: So, Jon, I'd be 

interested in your -- I find very interesting the 

case study, the competition and the Academic 

Challenge that you engaged in, and if you are 

seeing anything where a team looks at a community 

that's lost its bank and what's happened to the 

businesses in that community, so very communityspecific, or if you've looked in any of your own 

research to consider that (audio interference).

MR. POGACH: Yeah, so the, I hope --

the study doesn't really look at individual 

counties as much. They are really interesting 

case studies. And I would be interested in kind 

of understanding those specific counties and 
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what's going on there. That's not part of this 

study, though. But, yes, that's an interesting 

thing that we could look at.

MEMBER RYAN: And I'm even going 

beyond county to community, an actual town that's 

lost its bank --

MR. POGACH: Yeah, so the --

MEMBER RYAN: -- what happens to small 

business.

MR. POGACH: Yeah, the towns, the data 

on towns tends to be not as good. We can get 

some information below the county level. Often 

people like myself like to work at the county 

level because of the other economic information 

that can be attained at that level. But I've 

done some work at a finer than county level.

MR. DAVIS: Great. Other questions, 

comments, thoughts? Okay. Hearing none, Jon, 

George, thank you very much. Appreciate it.

We'll move to our next session. And 

that is, we are going to hear from Brandon 
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Milhorn, who is deputy to the Chairman and Chief 

of Staff.

Brandon is going to discuss two 

initiatives, and perhaps more if he would like, 

that are being undertaken by our new FDiTech. 

So, Brandon, I will turn it over to you.

MR. MILHORN: Sure. Thanks, Chad.

You know, when the Chairman came to 

the FDIC, we laid out broadly two proposals on 

innovation. The first was to encourage 

innovation, foster innovation at our nation's 

banks, including in particular community banks.

And the second and related was the 

more effective use of technology both at the FDIC 

and in particular in our supervisory efforts.

We've been working on that very hard 

over the last two years. The Supervision 

Modernization Subcommittee that the Chairman put 

together functions in many ways like this 

subcommittee. We had three meetings last year. 

We're working on a report right now.
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And in the middle of March this year, 

we really got to put that effort to the test, 

just like all of you. Our supervisory efforts 

went from about 60 percent onsite, 40 percent 

offsite to 100 percent offsite over a weekend.

And that brought with it some real 

challenges for us, and primarily because 

community banks, as you all know, come in all 

shapes and sizes, from those that are very tech 

forward to those that are still keeping their 

loan documents in triplicate stored in their 

vault. So we've got to work with all those 

institutions.

But if we can encourage them to adopt 

new technologies, we believe that will not only 

help their operational resilience, help them 

reach new customer sets, provide additional 

access to new and innovative products and 

services for their consumers, but it will also 

allow us to use technology more effectively to 

supervise them.
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So there are two initiatives that 

we've been working on in 2020 designed to attack 

both these problems.

The first, we put out an RFI, a 

request for information, earlier this year on the 

establishment of a public/private partnership 

that would be a standard-setting organization.

The FDIC would participate, along with 

other stakeholders. We're hopeful that other 

banking regulators would be involved as well to 

establish standards for third-party due 

diligence.

We heard from banks and tech companies 

that due diligence is one of the largest 

challenges in tech firms selling in the community 

bank space, first because all our onboarding 

standards are different. One bank may do things 

one way. Another bank may do it another way. 

And all that adds to cost for the tech companies.

In addition, the community banks 

themselves may have limited access to technical 
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expertise. They may not have the onsite 

expertise. They have limited research and 

development budgets.

They can't develop this themselves. 

Partnerships are critical. They have 

integration challenges associated with 

onboarding vendors, including working with their 

core processors.

And we believe that a standard-setting 

organization that is, that can look at due 

diligence requirements can streamline and 

alleviate some cost pressure in that area. So, 

instead of looking at three or four different 

onboarding processes, you'd have one.

We also think that that standardsetting process can extend to particular types of 

technologies, whether it's underwriting 

technology, AI/ML, KYC requirements.

And by having regulators formulate 

these standards at the table with industry 

stakeholders, we think we can keep them more 
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relevant. We can keep them focused on core 

requirements.

And then once we have those standards 

selected, once the SSO has articulated those 

standards, there would be a certifying 

organization underneath that SSO.

And these certifying organizations 

would act in some ways like, I like to think of 

them as sort of FDA labs where vendors would 

submit themselves for due diligence. They would 

submit their technologies for review for 

consistency with the applicable standards.

And then institutions would be able to 

onboard vendors that met those due diligence 

requirements, that met the technology standards. 

They'd be able to onboard those vendors, 

integrate them into their operations without 

conducting additional due diligence, sort of a 

Good Housekeeping seal of approval that from a 

supervisory standpoint financial institutions 

could rely on to incorporate the technology.
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Now, that wouldn't alleviate the 

responsibility of the institutions to conduct 

their own management of their third parties. 

There would be an ongoing responsibility for 

vendors to, or the institutions to manage their 

vendors.

And we want to look at how this 

supervisory expectation can interact with this 

Good Housekeeping seal of approval.

And one of the issues is, you know, do 

we want to send vendors back periodically to be 

recertified? Does technology, when technology 

changes, does that need to be recertified? And 

how would that affect ongoing management?

Now, the good news we think from this 

perspective is that it allows the industry 

working with regulators to be very flexible in 

their approach. We think it alleviates some of 

the cost pressure, some of the operational and 

regulatory uncertainty that financial 

institutions may face when they want to partner 
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with a third-party vendor.

We also believe that it can provide 

some certainty to tech companies and allow for a 

more dynamic, competitive marketplace for 

technology at the community bank level in 

particular.

So that's our request for information 

on a standard-setting organization. We're happy 

to take questions.

But we'd like to talk real briefly 

about what we're doing on the other side of that. 

So that's the initiative that we've run this year 

to increase third-party onboarding to make it 

more effective for community banks to innovate.

On the supervisory side, we kicked off 

our first tech sprint in June. And what we're 

working on in that context is, “Can we develop 

supervisory technology that, regardless of data 

structure, data format, can access bank 

information on a more regular basis, at a more 

granular level, and allow us to run analytic 
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tools against that data set?”

Now, what I think is interesting about 

the rapid prototyping competition is it's not 

your standard government procurement. You know, 

we didn't list off 1,000 acquisition 

requirements. We didn't manufacture or 

architect the solution in advance.

What we did, we invited about 30 

technology companies to come in. And we said 

here's our problem, here's our challenge. We 

have 85 percent of the financial information for 

our institutions is spread across multiple core 

providers. The data formats, data structures 

could be different across all these institutions 

based on their, who they're working with from a 

core standpoint.

We need to get access to that 

information on a more regular basis so that we 

can review it for institution specific, safety 

and soundness concerns, and so that we can 

conduct horizontal reviews to determine whether 
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there are challenges in any particular region or 

whether we're seeing systemic challenges across 

the entire enterprise.

Now, we're not trying to create a 

continuous monitoring system here. Our 

institutions don't change that much. And for 

large banks, we already have very effective dayto-day interactions and access to data.

Our goal here is to allow a more 

granular review for community banks that want to 

voluntarily participate in this activity.

We think by focusing on specific 

components of their spreadsheets, of their 

financial data, we can start building that 

supervisory technology that ultimately enables us 

to make the Call Report obsolete.

And if you saw the Chairman's op-ed in 

the American Banker in that June timeframe, she 

goes into much more detail about that.

And as you all know as supervisors, 

you know, by relying on that Call Report and 
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relying on that 12- or 18-month exam, we have a 

very point-in-time supervisory system. As the 

Chairman said, the Call Report is like going to 

the doctor to get a test run, and then four months 

later you get your results. Well, we want to 

know what's happening in the meantime.

And we believe if we're pushing for a 

more dynamic system, financial system at our 

institutions where banks are offering new and 

innovative products and services where they’re

partnering with technology, we have to have a 

supervisory system that matches it. And the 

rapid prototyping competition is our first step 

in that process.

I've said if, I've said before that if 

getting rid of, or making the Call Report 

obsolete is, you know, going to the moon, you 

know, we're at Apollo 1. We actually may be in 

the Mercury phase of this effort.

But you've got to take that first 

step, see where you can go. We'll learn lessons 
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and produce a prototype hopefully by early next 

year. The first quarter next year we'll have a 

working prototype based on the way the rapid 

prototyping competition works.

Again, we lay out the solution set. 

We lay out the challenge set. And our 

competitors propose solutions.

We had about 30 competitors to start. 

We ended up with about 15 or about 30 concept 

papers. We're going to cut that number down. 

Very soon we'll announce where we're at.

And then those vendors will have 180 

days to produce working prototypes. So this 

can't be back of the envelope or, you know, pie 

in the sky technology theories. This has to be 

things that we can implement within 180 days. So 

we're hopeful that we'll see very successful 

prototypes at the end of the competition.

So that sort of summarizes where we're 

at from a Tech Lab perspective on the Chairman's 

innovation efforts. Happy to take questions on 
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any one of those or discuss any other matters 

related to that.

MR. DAVIS: Great, does the group have 

any questions for Brandon? There's no hands 

raised, so if you have a question, just go ahead 

and chime in.

MEMBER HALL: Hi Chad, this is Melanie 

Hall. I can't really even figure out how to 

raise my hand.

(Laughter.)

MEMBER HALL: So -- you would think 

after six months of doing these virtual calls I 

would have figured out virtual hand raising, but 

--

MR. DAVIS: Seems like every platform 

is different.

MEMBER HALL: It does -- I'll go ahead 

and turn on my video too and figure out which 

camera I have on. It's okay. So Brandon, what 

has the feedback been? How -- how has industry 

responded? Particularly -- particularly to the 
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Call Report stuff? We know that certain states 

collect more regular information from their banks 

than the Call Report. How -- how has the general 

reaction from industry been? Because I know 

during COVID times it would have been wonderful 

to get some additional information. And it was 

challenging for them to kind of produce that in 

a -- in a one-off fashion. Particularly at the 

state level, we -- you know, we regulate non-bank 

entities. And so the Mortgage Call Report, for 

instance, gives us tremendously good data around 

the mortgage side of things on non-banks. But 

it -- it can be very difficult to get mortgage 

numbers and it's specific to -- to depositories. 

So I am just curious how the industry's reaction 

has been to this and what -- where you think some 

of the sticking points might be.

 MR. MILHORN: Yes, I -- so just for 

-- for background, you know, we didn't start off 

with trying to recreate the Call Report with --

with technology. Our goal here was to focus on 
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particular components of a financial 

institution's health and try to gain access. We 

haven't released the -- the specifics of the 

competition. But we're not trying to boil the 

ocean and recreate the Call Report from the --

from the very beginning.

We -- we -- you know, we do think that 

there's some benefit that -- that we can get from 

focusing on much more granular data on a more 

regular basis. The theory -- my theory being 

that if we can get more access to -- to granular 

data on a more regular basis, that it will 

eliminate some of the need for more detailed data 

on a -- on a quarterly basis. I think we'll need 

to see how the prototype develops. You know, 

obviously we're not -- we're not going to mandate 

that institutions participate. We're going to 

look at the prototype. We're going to make sure 

we understand how it's operating. We're going 

to -- we'll probably pilot some initiatives in 

this area next year to see if banks are willing 
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to -- to participate. We got good feedback from 

our vendors. The -- and the good news is, there 

are several institutions that already want to 

partner with them to help test the -- the 

prototype. So we're -- we're -- we're you know, 

cautiously optimistic that we're -- we're moving 

in the right direction.

I think the largest -- the biggest 

challenge really we're going to face in this area 

is -- is data format, data structure. It would 

be easy for us to say, all right, if you want to 

participate in the system, we need you to format 

your data in this way. My concern always on data 

formatting mandates is it can be incredibly 

expensive. It transfers cost to the private 

sector, and potentially limits innovation as 

opposed to supporting innovation. So we want to 

see in this first test -- and I think really, 

that's the biggest test in this rapid prototype 

competition that we've got going on right now is 

can we -- can we access data differently?
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You know, what we didn't say is, we 

want to pull it all in and dump it in the FDIC. 

We didn't want to -- we said, how can we best run 

analytic tools against it? Does that mean it 

needs to be in our system? Does that mean it 

needs to go through a data management layer? Or 

could we access it where it lives at the -- at 

the banks, or with their core providers? But I 

think that will be the biggest challenge. And 

we've asked our vendors to come up with solutions 

in that space and we'll see how far it gets us.

MEMBER HALL: Well, I'll just tell you 

that we'll be very interested in how that goes 

because it's something that CSBS has been 

struggling with on the non-depository side for a 

long time around what the data standard might

should be around, for instance, mortgage loan 

files when you're reviewing them from a 

technological perspective and how -- how all of 

that data comes into the system and the way that, 

if the data doesn't come in consistently, then it 
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cannot produce good results. And so that -- that 

really has been a significant challenge that we 

have been trying to work through for years. So 

it will be interesting to see what solutions your 

vendors come up with. We'll certainly be very, 

very -- very cautiously optimistic for you.

MR. MILHORN: Yes, and another thing 

that we've -- we've talked about with our 

vendors, you know -- the -- the -- one of the 

great benefits of the Call Report is that it's 

GAAP compliant. Right? There's -- there's a --

there's an ability to rely on that from a -- from 

a supervisory standpoint.

What we're looking at, at least 

initially I think, with the rapid prototyping 

tool -- or with the -- with the prototype, is 

more of an early warning system as opposed to a 

-- a -- an accounting-based testament to an 

institution's health. And I think if we can 

start with that conceptually, it gives us a 

little bit more flexibility on data quality to 
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work with the -- you know, basically, I see it as 

a mechanism for continuing to engage with 

institutions. Hey, this is looking a little

funny here. I wonder why that is. Or we see 

that you've added a new product or service. How 

is that impacting your borrowers? You know, 

those sorts of -- those sorts of engagements 

which are less formal, but I think ultimately 

could be more effective in identifying and 

mitigating risk early in a -- in a dynamic 

environment. So that's the -- that's our goal. 

Sort of build that first early warning system.

Now at the end of the day, if we want 

to get rid of the Call Report, or make it 

obsolete, we're going to have to get some 

additional data quality and data assurance in 

there. But, you know, let's say we'll start at 

step one. We'll see how far we get. And then 

we'll keep churning on the -- on the data.

MEMBER HALL: Don't give any of these 

old regulators on this call heart attacks by 
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talking about getting rid of the Call Report, so 

--

MR. MILHORN: That's okay.

(Laughter.)

MEMBER HALL: Thanks, Brandon.

(Simultaneous speaking.)

MR. MILHORN: -- We’re going to make 

it better. Look, I mean, we can continue to rely 

on the Call Reports and our 12- and 18-month 

exams, but -- but if we want to move supervision 

forward, and we want to affect -- and we want to 

use that to affect innovation in the marketplace, 

we have to provide some cost-beneficial 

incentives for institutions to come on board. 

Right? We can make -- if we can help them become 

more efficient -- if we can reduce regulatory 

burden by using technology in our supervisory 

efforts, it brings them along. And it makes us 

more efficient in the process. I don't want to 

be less effective. I want to be more effective 

and technology can get us there.
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MEMBER HALL: Yes, I think -- I think 

that technology has tremendous capacity in order 

to make all of us more efficient and more 

effective if it's done correctly. And I think 

that it brings banks to the table if they think 

that they could potentially -- you know, if -- if 

you're using it for identified -- identification 

of high risk areas if they know that something 

else can be scoped out through that risk 

identification process. And that -- that lowers 

their burden over there, even if it increases 

their burden in some ways in higher risk areas. 

I think they -- it makes it seem like the process 

is more risk focused, and is better suited to 

that individual institution versus sort of being 

all over the place.

MR. MILHORN: And the good news is, 

the lessons we're going to learn in this -- in 

this competition could have potential benefits in 

other areas. Think of integration. Or 

technology integration at institution. Well, if 
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I know how to pull data into a -- maybe it's a 

data management layer. If I can pull data into 

a data management layer and I can run software 

tools against it in a agnostic -- technologyagnostic environment, then I can also improve the 

way that community banks integrate technology 

into their operations. So we think that's a --

that's a potential downstream -- downstream 

benefit of the research we're doing here. You 

know, I always say from a -- from a -- our 

incentive as -- as supervisors, as regulators, is 

to be incremental. To look over the hood. But 

to be innovative, you've got to look over the 

horizon and that's what our tech lab is there to 

do. So if we can experiment in a safe 

environment with our institutions, learn lessons, 

move forward, then -- then that allows us to 

really innovate. You know, we wouldn't have 

stealth technology, right, if we had just tried 

to be incremental. So that's -- we're -- we're 

pretty excited about where we're headed there.
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MEMBER HALL: So Brandon, one final 

question. Sorry to monopolize everybody for a 

little while, but -- so when you're working with 

these target institutions, or these kind of 

volunteers, are they larger institutions? 

Regionals? Tiny banks? What size are we -- are 

we playing in the sandbox with?

MR. MILHORN: So our goal is -- our 

goal -- our primary goal is community banks. As 

- and as -- as the tech lab moves forward, as we 

get it fully established, you know, we want to 

see institutions working with their tech 

partners, bringing forward proposals just like 

this from a -- from a prototyping standpoint --

from a rapid prototyping standpoint, we've 

allowed the vendors to sort of propose their own 

institutions for a test. And that's the approach 

we've taken. We've got community banks of all 

shapes and -- and sizes there.

MEMBER HALL: Great, thank you 

Brandon.
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MR. MILHORN: Thank you.

(Pause.)

MR. DAVIS: Great. Other questions 

for Brandon? Comments? Don't let him off here 

early.

(Laughter.)

(Pause.)

MR. MILHORN: So I guess the last 

thing I'd say, Chad, before -- before I run is, 

you know, we are partners with our -- our -- our 

state regulators -- at the FDIC in particular. 

You know, we work with each other on supervisory 

efforts. Our banks are managed and supervised 

by both. Please feel free to reach out. You 

know, Chad has my contact information. 

Bmilhorn@fdic.gov. I'd love to hear what you're 

doing in this space. I know CSBS has been 

working on -- on several initiatives in this 

area. We can be partners and move this --

there's no pride in authorship here. We can move 

forward together on these initiatives.
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(Pause.)

MR. DAVIS: Great. Brandon, thank 

you.

MR. MILHORN: Thank you.

MR. DAVIS: With that, unless there's 

any questions, we'll move to the next panel.

(No audible response.)

MR. DAVIS: Okay. Our next panel is 

from the Division of Risk Management Supervision. 

We have Director Doreen Eberley, Deputy Director 

of Operations John Vogel, and Associate Director 

of Risk Management Policy -- the Risk Management 

Policy Branch, Rae-Ann Miller. They're going to 

lead a discussion with the committee on state -

federal coordination. And again, this is with 

all of our panels -- but especially with this 

panel, I encourage all of you to please -- please 

engage with us and have this be a two-way 

dialogue. So with that, I will turn it over to 

Doreen. Thank you.

MS. EBERLEY: Thank you, Chad. It 
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has been really great to see everybody today. So 

let me say hello to everyone first. We want to 

talk a little bit today about our supervision 

program and the changes that we've made in 

response to the pandemic. We'll talk a little 

bit about off-site exams and the examination 

process. A little bit about the policy response, 

and then a little bit about the operational 

response, which gets a little bit more into 

examiner training and the technology challenges 

that we faced. And -- and then open it up for 

discussion. So we'll consider this first part 

just kind of our report out back to you. Similar 

to yours to us in the beginning, which was really 

interesting. Thank you very much.

So I'll kick it off with a little 

discussion about the examination program itself. 

Much like you, for the first couple of weeks of 

the pandemic, we just stopped. We felt like we 

needed to give bankers an opportunity to respond 

to the needs of their employees, their customers, 
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their families. And then after that -- and we 

had some work to do ourselves. After that, we 

offered a continued pause in our examination 

activities. Whether they were in the planning 

stages or actually already in process in two-week 

intervals. And we did that for a few iterations.

During that period of time, we took 

the time to develop our own interim policies in 

our approach. We began completing examinations

that were in process, figuring out which 

examinations in process we weren't able to 

complete -- and actually, there was only one. 

Without going on-site or getting additional 

information. And we began starting new 

examinations.

So since March 16th, the start of the 

pandemic, we've actually started and completed 

more than 700 examinations of financial 

institutions. And I do think, you know, some of 

the keys to our success of being able to pivot so 

quickly really related to the work that we 
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completed over the past several years to leverage 

technology to conduct more examination work off 

site. Brandon mentioned this in his remarks 

that, you know, we had a goal of moving our offsite percentage up and doing a little bit more 

off site. We implemented some new examination 

policies last year to change the timing of our 

exam planning effort -- to move it up, start it 

a little bit earlier. Give examiners more time 

to prepare for an examination -- really think 

hard about risk focusing and what procedures they 

needed to perform. And also to spend time 

thinking about which of those procedures, then, 

could be performed off site, and which really 

needed to be performed on site.

And so I think the changes that we 

made -- not only in that effort, but in our 

technology efforts -- really helped to support 

that shift. On the technology side, you know 

that we've been piloting some products over the 

last few years. Our file image viewer for 
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examiners to be able to obtain standardized 

imaged loan files from core processors, and view 

them in a viewer that -- that we built. We did 

that in coordination with our colleagues at the 

Federal Financial Institutions Examination 

Council Task Force on Supervision, of which the 

State Liaison Committee is a member.

We also have used WebEx to remote 

desktop in. And we've used some other 

technologies as well. And because we had 

actually done that work and started it a few years 

ago, we really were able to pivot pretty quickly. 

And I was super pleased about that. And we've 

been able to continue our exam program.

So I’m going to turn it over to RaeAnn to talk a little bit about the additional 

policy changes that we've made in response to the 

pandemic, and then to John to talk about the 

operational changes related to training, onboarding, exam technology support, and our plans 

for conducting an on-site examination during this 
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period should we find the need to do so. So, 

Rae-Ann?

MS. MILLER: Thanks very much, 

Doreen. I hope folks can hear me. I'm using 

various equipment here in my -- in my office. So 

yeah -- so Doreen mentioned some of the things 

that we needed to do to pivot very quickly and 

conduct our examinations on an off-site basis. 

And I would say, one of the things that -- that 

was a real big change in the beginning was just 

actually training and holding calls with the 

examiner corps when they're all working from --

from home. We're typically used to discussing 

things with them from VTC rooms, or they might 

gather in their field offices. So just having 

lines and the capacity -- especially in the 

beginning when we weren't used to things like 

WebEx and MS Teams and things like that. It was 

actually quite -- quite challenging.

So as Doreen mentioned in the 

beginning, we sort of paused things. And then 
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we worked with our examiners to come up with a 

set of sort of tactical instructions. And we do 

the words on the page in my group on how to do 

the examinations. And then John's group -- and 

John can talk about some of the technical things 

and the tools that they were provided in the 

background. But basically, we -- we determined 

that with -- with Legal’s assistance that we 

could do examinations off-site. As you know, we 

have a statutory requirement to do on-site 

examinations of institutions within certain 

periods of time. So we needed to establish that 

that was -- that that was appropriate. And we 

basically established -- and I'll talk about some 

longer-term policies that we have been working on 

for a long time to establish an extended 

definition of what it means to -- to conduct a 

full-scope examination. And so we implemented 

that rather quickly, which was to require 

examiners to document that a full-scope 

examination has been conducted by completing the 
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core analysis decision factors within the primary 

CAMELS modules.

And so we did that very quickly. And 

we have a more permanent change I'm going to talk 

about in a minute. But so -- so that was part 

of us being able to make sure that we knew that 

a full-scope examination could be completed and 

that we have a consistent way of -- of knowing 

that. So we did that. And then we also 

indicated that -- for examinations that could not 

be conducted -- that we could not conduct a fullscope examination, that those examinations would 

be held in a -- in abeyance. And that the 

regional directors would keep an ongoing log of 

those examinations and return to those -- and we 

could talk about some of the statistics on those. 

There's very few, but in the beginning we 

certainly had a number of institutions that asked 

us to pause and then, if we're unable to resume, 

we were continued -- considering that an 

examination held in abeyance.
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For those institutions that were held 

in abeyance, we directed the regions to conduct 

a monitoring program for those institutions, 

which would be something -- you know, short of an 

-- of a full-scope examination, but requiring 

information and contact with those -- with those 

institutions. We also -- generally we talked 

about being responsive to institutions, 

understanding that they continued to have 

operational difficulties and being judicious in 

asking for information. We always -- judicious 

in asking for information, but particularly 

sensitive to the fact that their own employees 

were experiencing disruptions as well. And we 

talked about conducting meetings and, you know, 

sort of tweaking the definitions of when an 

examination start date would be. You know, 

there's no boots on the ground at the exam. So 

it has to do with contacting the -- the banker on 

the first day. And we also included discussions 

about -- for the case managers, about documenting 
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concentrations as well. And as you know, the 

summary analysis of examination reports is a --

is a tool that the FDIC has used for some time. 

And we wanted to make sure that case managers 

were capturing concentrations appropriately.

And one of the things that came in 

handy was our training on concentrations and our 

focus on concentrations -- and our risk-focused 

approach to that section of the exam really came 

in handy because, as you know, some sectors of 

the economy that we were perhaps not focusing on, 

such as hospitality or restaurants and bars --

you know, the general leisure activities that at 

least initially were hit pretty hard, are not 

something that were on our radar screen 

beforehand. So having the ability to look at the 

exam concentrations page and -- and gather that 

information was very, very helpful to us.

And we also wanted to remind folks 

about the regional call-in process, which is a 

process that the regional offices have where an 
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examiner would let the regional office know 

before filing the draft examination report 

whether the examiner is recommending a downgrade 

to that institution of a three or worse. And 

some regions have call-in procedures for other 

risk factors that they're tracking. And so we 

just wanted to remind folks to be on the lookout 

for those, and to make sure examiners are aware 

of those.

And then on a more permanent basis --

I touched on this earlier -- we have been for a 

long time -- and some of you worked on our 

examination modernization process through the --

through our FFIEC group. And we have been 

working on documentation issues as well as other 

processes -- examination processes that Doreen 

mentioned. And when we started this -- this 

work, like two years ago, we did observe in -- in 

-- differences between regions. And sometimes 

even within offices regarding documentation 

requirements of the examination. And we had very 
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general documentation requirements for 

examinations. So we had been planning for a --

for some time to work on -- on standardizing those 

documentation methodologies. And during the --

during the pandemic, we instituted the change and 

require examiners to document that a full-scope 

examination has been completed by answering the 

core analysis decision factors in the -- the 

primary examination documentation modules. And 

you know, one of the things, you know, that this 

would help with is to serve as an internal control 

during this time of the pandemic. And in other 

words, we can document in this time when physical 

-- mobility of examiners is limited, that we have 

done a full-scope examination.

But, you know, to -- to Brandon's 

point earlier, you know, we are looking to 

modernize our examination and supervisory 

platforms. And at some point we would like to 

modernize and have a more so-called end-to-end 

supervisory process, rather than sort of a siloed 
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set of systems that we use now to examine the 

bank, produce the exam, and then document the 

examination. So putting the policy in place 

where you have a standardized documentation 

process really helps to move to that -- to move 

to that system. And we found the same thing with 

examination planning where we instituted a -- a 

new -- a new process, as Doreen talked before, 

with increasing the amount of time that we 

provide for examination planning activities.

We also noted that this process of 

using the -- the ED modules certainly promotes 

consistency between -- for state examinations 

since the Fed has been using the ED modules for 

some time. And then I mentioned it does promote 

consistency and standardization across the 

division. And we did train and have continued 

to train on -- on this policy. We emphasized the 

difference between examination procedures and 

documenting the examination and the use of the ED

modules. In other words, not every single 
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procedure needs to be performed. Not every 

single procedure needs to be filled out. So 

we've been training on this.

And I think importantly, another thing 

that we've instituted in this -- in this process 

is a -- a team of experts from the regions, from 

the field, from the Washington office, from 

general safety and soundness in my group, and 

from the specialty groups. And we call it our 

SME group. And this group gets together and 

talks about best practices, talks about 

collaboration efforts, things that have been 

working in their regions or in their field 

offices. And from that, we've -- we've developed 

a set of best practices and procedures that we've 

been talking about with -- with the examiner 

corps, just sort of on a more general basis. So 

Doreen, I think I'll stop there. And I don't 

know if you want to go to John or turn it over 

for questions?

MS. EBERLEY: Yes, let's go to John 
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and then we'll open it up for questions.

MR. VOGEL: Hi, can you hear me, 

Doreen? I'm trying to get my video to start.

MS. EBERLEY: It's just a little bit 

murky. I'm not sure the right word. You want 

to try again?

MR. VOGEL: Okay. How about now? 

Does that sound a little better?

MS. EBERLEY: Yes. It does sound a 

little better. Thank you.

MR. VOGEL: Okay, great. And 

hopefully, the video will start in a moment. 

Anyway, so thank you for the opportunity to 

address the group. I’m pleased to talk about the 

areas Doreen mentioned, starting with our 

training efforts. You know, it was critical to 

us at the beginning of the pandemic to be able to 

maintain our robust training program, both in the 

classroom for our core school delivery and for 

our on-the-job training program, which is 

essentially an apprenticeship model where our 
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junior examiners (audio interference) work with 

our more tenured examiners.

Let me start with Corporate

University, our core school delivery. We decided 

that it was imperative that we continue the core 

school training (audio interference) in a virtual 

environment. So we reached out to our colleagues 

in Corporate University, and we converted all of 

our core schools. There are ten of them plus two

orientation sessions to virtual delivery. It's 

a big undertaking but through our partnership 

with our colleagues in Corporate University and 

around the country, with our instructors, with 

our training coordinators, we were able to do 

that. We converted over 700 hours of classroom 

training (audio interference).

It was also important to us to make 

sure that we included our state counterparts in 

that training. Right from the beginning, we 

maintained our same level of commitment and we 

offered the states slots in our core schools. 
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And to date, we have delivered 14 compliance

sessions, which included (audio interference) 

state participants. And on the risk management 

side, we delivered 21 core schools with 140 state 

participants. So it's been successful. There's 

been some bumps in the road as our instructors

learn new technology (audio interference) 

time/scheduling issues, but it's gone well. We 

will continue this virtual training through the 

end of the year and likely through July of 2021. 

(audio interference)

Some of the other challenges we’ve had 

(audio interference) reports is to be able to 

have that apprenticeship model where examiners 

are able to collaborate with each other. So our 

field supervisors have been really innovative in 

coming up with different ways to get engagement 

from the commissioned or newly commissioned

examiners. They’ll host (audio interference) 

training days and in the New York region it’s a 

Tuesday training day, where -- I believe 
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examiners around the region will, you know, share 

their expertise (audio interference) in the 

subject matter. They'll have team events where

newer examiners will work with senior examiners

on a particular issue. So it's been working. I 

will say that nothing beats being on an

examination and working around the table with 

their colleagues, but they're doing the best that 

they can. By all accounts, it’s been going well. 

Doreen and I meet with the first school 

participants and the fourth school participants. 

We chat with them virtually to see how the 

training's going. Thus far (Inaudible). So 

we’re pleased, we’re pleased with how the 

training (audio interference).

The other thing that we wanted to 

uphold are making sure that we have enough 

examiners to conduct our exams. So we committed

to hire around 120 (audio interference) examiners

each year, even during a pandemic. So it was 

interesting. We had just gone through a hiring 
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event last year (audio interference). Also, we 

committed to hire some folks (audio interference) 

and, you know, it was very clear to us and our 

colleagues in the Division of Administration and 

other folks around the organization that we 

wanted to honor that commitment to the folks that 

we offered jobs to even though we were

immediately on lockdown so to speak. So we were 

able to virtually onboard with the assistance of 

our colleagues – a group of examiners on March 

31st. It went very well. Our folks from our 

CIO's office were able to get the equipment that 

we needed. They were able to do all of the

security clearances, they were able to do all of 

the virtual onboarding that they needed to do.

All the reports from our supervisors is in (audio 

interference). So we're very pleased to report 

that that that process continues as we do 

continue to hire, that we'll be able to do it 

virtually. So a lot of success there with a lot 

of help and support.
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Doreen mentioned the technology 

piece. So we were fortunate that we had started 

a while back endeavoring to do more of our 

examination work offsite so we had familiarity

with a lot of the tools already. So we were able 

to make that transition fairly smoothly. There 

are some institutions that don't image loan 

files, but we’ve been able to be successful, 

they’ve been able to scan files and send them to 

us. We’ve used our EFX system, so banks can scan 

loans and submit them through that system. We've 

been able to use WebEx, MS Teams. We are now 

using MS Teams collaborative sites. So we've 

been able to, you know, be creative and undertake

a number of initiatives to make sure that we can 

do our exam work safely offsite. Some of the 

banks use Citrix, so virtual machines where we 

can actually log in and look at these (audio 

interference) loan files and without any scanning 

and without any shipping of the documents. So 

it's been successful, but we -- you know, we fully 
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anticipate that there may be a time where some of 

these tools won't work and we’ll have to be 

creative. So one of the -- a couple of areas

that we’re exploring (audio interference) do we

have contractors scan loan files, upload them to 

the (audio interference) service provider (audio 

interference) effectively do the loan review

(audio interference) offsite (audio 

interference). Some (audio interference) scan 

before meeting. (audio interference)

So a number of undertakings in

process, again. Thus far, we've been able to do 

our exam work, but we want to make sure that in 

the event that we do need to, you know, provide 

tools, that we're able to provide them.

Let me last mention that, you know, 

there will come a time that we have to go onsite, 

but we are working with the FDIC’s contracted 

healthcare provider to make sure that we have the 

most effective protocols in place for our team 

members when they have to go onsite. Making sure 
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the banks have (audio interference) proper

protocols for cleaning and social distancing and 

we will make sure that our staff has the 

appropriate personal protective equipment and 

social distance (inaudible). So we know we'll 

have to do it at some point, but want to make 

sure we do it in the safest way possible. So let 

me pause there Doreen unless there's something 

you wanted me to address.

MS. EBERLEY: Let's see. I think we 

can open for questions. I will just kind of 

close the loop on the examinations held in 

abeyance. We did have -- it was fewer than two 

handfuls of institutions across the country that 

did ask to delay, and usually because of 

challenges with their own staff, either because 

staff were occupied taking care of children at 

home or family members or, in some cases, 

illnesses in the institution, and so operating 

with a reduced capacity. But I am pleased to say 

that within the last two months, we have gotten 
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all of those institutions back on schedule. The 

institutions have been really -- they've been so 

great about working with us and scanning 

documents for us and taking the time, and even 

those seven that weren't to do it initially 

ultimately were. And so we actually don't have 

any examinations held in abeyance at this time. 

A couple of managed delinquencies due to 

hurricanes, you know, and that's the sort of the 

thing that, you know, we deal with every year in 

the course. We'll get those back on track 

towards the end of the year, but we need to give 

those institutions a little bit of time to 

recover from the hurricane damage.

And we're happy to open it up for 

discussion.

MEMBER LEARY: This is Ed in Utah. I 

probably have a question for John if you heard my 

introduction. We've gone through the hiring 

process. I know we're fortunate to be able to 

do so. But we were questioning what would seem 
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to work post on-boarding. They would have their 

technology provided. I think we're comfortable 

with that, but it's the proverbial on-the-job

training. Anything seem to work? You mentioned 

apprenticeship model, training days. Did that 

seem to work well in a virtual environment?

MR. VOGEL: It has and thanks for the 

question. It has worked well. A lot of the 

folks that we've hired recently have a lot of 

technical experience and technical capability so 

they’re able to adapt to what was probably the 

way they learned before they joined the FDIC, so 

that's gone well. The scanning of the documents 

and being able to share those in collaborative 

environments has been very helpful. Our

examiners – our commissioned examiners are able 

to gather a, you know, group of pre-commissioned 

examiners from around the region. I'd say not 

only (audio interference) but across field

offices to give training benefits (audio 

interference) such (audio interference). It's 
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worked well. Nothing -- no one will tell you 

that this is the way to do it always, you know, 

(audio interference) then but, you know, they've 

made it work.

MEMBER LEARY: Thank you. That is 

helpful for those of us about to enter that arena.

MS. ROY: This is Lisa. Chad had to 

drop off for just a second, so I just want to see 

if there's any other questions for the 

supervision panel today? Kevin, it looks like 

your -- you have a question?

MEMBER THOMPSON: Yes. This is --

Doreen, Mick Thompson, Oklahoma. This -- I think 

John may have answered it but I couldn't hear him 

very clearly. Do you have a schedule when you 

think you might be trying to go back onsite for 

examinations?

MS. EBERLEY: We do not, Mick. You 

know, we're planning to do as much offsite as 

possible while we're in the national emergency. 

But we are making a plan for those situations 
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where we would have to go onsite.

MEMBER THOMPSON: We've -- the only 

thing we're doing onsite is I'm letting my EIC 

work with the bank, and if they want us to come 

onsite to do the exit, I'll allow one of my – my 

EIC to go on site and meet with their management 

committee or their board, but only for -- just 

onsite for an hour or two. That's the only 

change we've made to what we're doing with the 

FDIC.

And the other thing I wanted to ask 

you is that there was some talk about some of the 

small banks that didn't have their files scanned, 

that the FDIC was considering maybe sending a 

crew in to scan those documents for them. Has 

there been any more dialogue on that?

MS. EBERLEY: We are right now 

considering our options, Mick, and John did 

mention this. I'm getting a little bit of 

feedback. I don't know why. The options include 

-- we have our own high-speed scanners that we 
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use on examinations, and so one of our options is 

to actually ship those to institutions for their 

use to scan whatever documents we need. If they 

don't have high-speed scanning, you know, 

capability within their office buildings.

Another option would be to send 

somebody to scan. And, you know, whether that 

would be an FDIC employee or somebody that we 

hire to do it, that's another option we're 

exploring. You know, we've had really good luck 

with institutions that do scan. It's just worked 

really well either to use, you know, remote 

desktop technology on a dummy terminal, or to use 

the file image viewer, or to just receive scanned 

loan files through EFX, as John mentioned. That 

has all worked really well, but we still do have 

about 40 percent of our institutions that don't 

scan. So far almost all of those have been able 

to scan some files and send them to us. So we've 

just had real good cooperation from the industry. 

And, you know, this might be a time where the 
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industry starts to pivot to actually moving to 

more imaged loan files as a way to make the 

examination process easier. We'll see if this 

creates a change.

MEMBER AFDAHL: Doreen, this is Bret 

Afdahl in South Dakota.

MS. EBERLEY: Hey, Bret.

MEMBER AFDAHL: Say, not a question 

so much as maybe a thought for the future -- area 

for additional discussion. You know, in talking 

with other states, I think like there are some 

differences in how maybe FDIC examiners or field 

staff are treating classified assets or 

exclusions to classification. One example would 

be current year operating loans for an ag 

customer, you know, so in addition to excluding 

inspected grain and livestock, there are some 

instances of the current year operating note 

being excluded, but it doesn't seem like that's 

widespread. I know it's been the case in our 

field territory here and I think in North Dakota, 
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from talking with Lise but, you know, I don't 

think it's very widespread. So I think it's just 

an area to discuss going forward to make sure 

we're consistent in how we're treating those to 

the extent we can be. I mean each agency is 

going to have their own approach to different 

things, but just wanted to maybe have future 

discussion on that to make sure we're on the same 

page at least.

MS. EBERLEY: Sure. Thanks for that 

comment, Bret. I will share with you that we are 

working through the Federal Financial 

Institutions Examination Council Task Force on 

Supervision to have discussions about the kinds 

of questions that we're hearing from examiners, 

if we're hearing questions from examiners, or 

from the industry about where additional guidance 

or instruction may be needed.

We are going to be doing some internal 

training on the examiner instructions for 

examining a bank in a pandemic, and we made those 
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available publicly so institutions could see the 

instructions we're giving to examiners, which is 

really to, you know, consider a bank's risk 

management practices, their approach to 

responding to the pandemic, and understanding 

that this is an exogenous shock, you know, that 

management was handed that may be delivering 

financial problems to the institution.

The flexibility we would exercise is 

on the management side and the supervisory 

response, but the rules for recognizing problem 

assets, you know, those are still in place.

And so we'll continue to have 

conversations. Rae-Ann mentioned the call-in 

memo is one way that we plan to make sure we have 

some consistency across the board. But we'll 

continue these conversations, too, with the Task 

Force on Supervision. So I would ask you if you 

hear anything -- and Tom, maybe you can pass this 

around as well -- you know, please share it with 

Tom Fite, and he reports out on behalf of the 
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states at the Task Force on Supervision every 

month when we talk about this.

MEMBER AFDAHL: Sounds good. Thank 

you.

MS. EBERLEY: Yes. Thank you.

MR. DAVIS: Kevin Hagler, I think your 

hand is raised. Go ahead if so.

MEMBER HAGLER: I hope you can hear 

me. Just kind of going back to the training and 

development comments that I think John was 

talking about. I'm just kind of curious with the 

hiring at the FDIC, are you pulling people 

straight from college; are you getting folks from 

the industry; or are you -- and/or bringing folks 

-- you know, bringing back retirees or examiners 

like that? I was just curious. One of the 

issues -- you know, and we, too, may have an 

opportunity to hire one or two folks in the 

foreseeable future. It will probably be the 

college level -- it almost certainly will be. 

But I was curious if that changes any of your 
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approach with the onboarding process and the 

training process. I worry about, you know, 

building that regulatory culture with someone 

right out of college, which may not be as 

difficult a challenge with somebody from the 

industry and certainly shouldn't be a big lift 

bringing back a former retiree. So I didn't know 

what kind of --where the pool was coming from 

that the FDIC was drawing from, or if it's a 

mixture, if you had some thoughts on the various 

approaches that might be applied.

MS. EBERLEY: Sure. Our hiring is 

primarily at the entry level. That's the 120 

that John mentioned every year, and we have some 

additional entry level hiring this year for 

cybersecurity analysts and loan review analysts, 

so targeting folks right out of college. And, 

you know, the culture, it's an interesting 

question, and it's one that we've had an awful 

lot of conversation with our field supervisors 

about, is how do you create that environment and 
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the opportunities for the kind of interaction you 

would have if you were in the office where you 

just bump into people and you talk, or you're in 

the bank and you're sitting around the boardroom 

table. 

And we have tried to use the tools 

that we have available to help facilitate that 

that John mentioned. And I think John may be 

having some technical difficulties and dropped 

off, but he mentioned the training Tuesdays, you 

know, where everybody can tune in at once and get 

trained on the same subject, and that is 

alternated around offices so that not one office 

is responsible for completing all of the 

training.

We've had training teams where, you 

know, a commissioned examiner or two take a team 

of trainees to work with them. And it's not just 

to train them in the skills of becoming a 

commissioned examiner, but also in the culture of 

the FDIC and their field office and understanding 
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that. And so the field offices, we probably had 

more meetings these days than normal, but that's 

also been helpful, I think, in getting our new 

employees seeing the faces of the people they 

work with, hearing from them, kind of 

understanding the vibe and culture of the office, 

and we've really encouraged that, that our field 

supervisors hold those sort of meetings, have 

folks use their cameras, you know, make sure that 

we're talking and checking in on each other and 

seeing each other. And I think that's been 

relatively helpful and, you know, John mentioned, 

and it's true, that certainly the folks that 

we're hiring right out of college are more 

accustomed to using technology than we are, and 

so this isn't that weird for them, you know. 

They're able to adapt to that and understand it. 

Thank you.

MEMBER HAGLER: Thanks, Doreen. 

That's very helpful. I appreciate the comments.

MR. DAVIS: So I don't believe there's 
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any more hands raised currently, so if anyone 

else has a question, please feel free to just 

chime in. Okay. Hearing none, thank you --

MS. EBERLEY: Thank you.

MR. DAVIS: -- for the presentation. 

We'll move on to our next panel. Our next panel 

will be on financial inclusion efforts. It will 

be Elizabeth Ortiz, Deputy Director of Consumer 

and Community Affairs, and Emerson Hall, 

Associate Director of Community Affairs. And I 

will turn it over to both of you now. Thank you.

(Pause.)

MR. DAVIS: Liz, if you've started 

talking, I believe you're muted.

(Laughter.)

MS. ORTIZ: I'm sorry, I was brilliant 

and you all missed it. Anyway, all I said was 

that I was going to try and be a zippy and 

energetic presenter, and it's hard to really do 

that if you're on mute. So let me take another 

crack at it. All right. Next slide, please.
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All right. First, Emerson will give 

you a brief overview of the five areas of economic 

inclusion opportunity that serve as the 

foundation for our work in Community Affairs. 

And you may have noticed that this presentation 

uses the terms "financial inclusion" and 

"economic inclusion" interchangeably. Financial 

inclusion really focuses on the connection 

between a consumer or a business to the financial 

services system, which I think of as quite simply 

as having a relationship with a bank. And 

economic inclusion is sort of broader and 

considers the individual's participation in the 

economy as a whole and takes into account things 

like employment, for example. Now our Chairman 

has said, and I am paraphrasing since she's here 

and can certainly correct me, that having a 

banking relationship is the equivalent of 

becoming a shareholder in the U.S. economy. And 

so since she has so eloquently combined these two 

ideas into a single sentence, I think we can move 
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back and forth pretty easily between these two 

terms today as well.

After Emerson takes you through our 

economic inclusion ladder, I'll come back and 

talk a little bit about where we are right now in 

the intersection between the needs of consumers, 

which have been highlighted by the unique 

challenges of this pandemic, and the opportunity 

for financial institutions to be helpful, and how 

we at the FDIC are trying to connect the dots 

between the two. And after that, I'll probably 

expand the frame a bit just to consider the 

broader opportunity to expand account access as 

we think ahead to next year and build on some of 

the lessons we've learned from our extensive 

outreach over the past several months. And then 

Emerson will conclude our presentation and 

provide you an overview of FDIC's resources 

including resources for banks that are designed 

to help improve financial capability, our Money 

Smart program, which is really the foundation for 
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a productive and successful banking relationship. 

Over to you, Emerson.

MR. HALL: -- and sustainable products 

and services from insured depository institutions 

that help individuals meet their financial goals. 

Furthermore, the advancement of economic 

inclusion is core to the FDIC's mission, which is 

to maintain stability and public confidence in 

the nation's financial system. Economic 

inclusion is enhanced when banking systems 

effectively meet the financial service needs of 

the broadest possible portion of the public, and 

consumers take advantage of the opportunity to 

begin a banking relationship.

Our initiatives are creating 

sustainable and positive connections between 

banks and a broad range of customers. We promote 

the benefits of safety and soundness of financial 

institutions, which supports the well-being of 

bank customers and communities they serve. The 

economic inclusion ladder represents the 
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progressive nature of economic inclusion. 

Moving up the ladder, customers gain knowledge, 

resources, and experience through relationships 

with insured depository institutions.

The bank, in turn, grows the 

relationship across products and services 

beginning with financial education and affordable 

saving and transaction accounts. With the help 

of a banking relationship, a customer builds both 

credit and savings that enhances stability and 

resilience for individuals and families. 

Ultimately, many choose to purchase a home or 

expand a business.

The first step in the ladder promotes 

and supports quality financial education through 

innovative programs to build financial capability 

and the development of educational resources 

responsive to the needs of low to moderate income 

individuals, emerging small business, and diverse 

households and communities.

The second step in the ladder is 
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insured deposit accounts initiative advances 

access to and the use of affordable and 

sustainable insured deposits with transaction and 

savings accounts.

Household credit and savings is the 

third step in the ladder. This seeks to improve 

financial stability and resilience for consumers 

by encouraging affordable savings and credit 

solutions from banks and community partners.

As individuals advance up the steps of 

the economic inclusion ladder, it's possible that 

many consumers may save enough to purchase a 

home. So our fourth step is to encourage 

depository institutions to make available 

prudently-written affordable mortgages, credit 

for low to moderate income households. Here 

we're placing particular emphasis on community 

banks' ability to take advantage of federal and 

state programs designed to expand home ownership 

opportunities.

The fifth step is supporting small 
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business startups and the expansion of small 

businesses. We encourage financial institutions 

to prudently seek methods to strengthen access to 

financial services for emerging entrepreneurs and 

small businesses. So Liz, I'll hand it back over 

to you now. Thank you. Next slide, please.

MS. ORTIZ: Thanks, Emerson. I 

wanted --

MR. DAVIS: Liz, I think you may have 

frozen on us.

MR. HALL: Okay. So let me kind of -

- I'll jump in until she comes back here then. 

So this is --

MS. ORTIZ: Can you guys hear me?

MR. HALL: Yes. Hello?

MS. ORTIZ: I'm sorry. Is my 

connection not working well?

MR. HALL: You had froze up just for 

a second there.

MS. ORTIZ: All right. I'll try 

again. So we focus on partnerships, and we 
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develop additional resources to make building 

those connections easier, and then third, whether 

the resources are our Money Smart program, or our 

online affordable mortgage lending center, or our 

guide for community banks that want to work with 

CDFIs, we want to share the success stories from 

banks and community organizations that have used 

our resources to work together. And we used to 

do this in person, but now we are doing it online 

through webinars, our website, and our now 

virtual local networks.

Now let me turn to what's happening 

right now. The pandemic has impacted consumers 

and small businesses in ways that are 

unprecedented. And while no one could have 

predicted a global pandemic, I think we could 

easily have imagined which communities would be 

hit hardest by it. These are the same 

communities that were hit hard by the foreclosure 

crisis 10 years ago, and the same communities 

challenged by the digital divide, and the same 
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communities that have the least connection or 

even no connection to the mainstream banking 

system.

And so to help, the FDIC developed 

COVID-19-specific web pages that include 

materials and guidance for consumers, banks, and 

businesses. As important, the web pages link 

directly to partner organizations and their 

websites making it easier for consumers and 

businesses to find needed information and 

resources offered by an array of federal 

partners.

As folks know, the CARES Act included 

two major programs for financial assistance, the 

PPP for small business, and the EIP for 

consumers. For the PPP, FDIC worked with the SBA 

as well as other bank regulatory agencies to get 

information to the banks who needed to know how 

to enroll themselves in the program if they were 

not already SBA-approved lenders, submit 

applications for their small business customers 
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and most recently, how to process the 

documentation required for loan forgiveness.

For the EIP program, economic impact 

payments, getting financial assistance to 

consumers meant you had to solve the problem of 

paper checks. And I think in a rare moment of 

alignment across government and industry, nonprofits and consumer advocates, everyone agreed 

that getting financial assistance to consumers 

quickly and safely meant doing it electronically, 

which meant that consumers without a bank account 

needed to get one.

And so the FDIC developed its own web 

page that provides consumers with connections to 

banks that offer ways to open accounts remotely, 

online or through a mobile app without going to 

a bank branch, and allowing them to receive their 

EIP payments quickly and safely. We worked with 

partners at the ABA, ICBA, and BankOn so that 

consumers could easily find a bank and a bank 

account that would work for them. And in a first 
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for us and a first for the IRS, too, I believe, 

there was a link and an FAQ on the IRS's website 

that took those individuals interested in a bank 

account back to the fdic.gov resource page, and 

this resulted in over a half a million new 

visitors to the FDIC's website.

And we have continued to work with the 

IRS. Just recently, we have partnered with them 

to reach the up to nine million individuals who 

have not yet received their Economic Impact 

Payment for which they are eligible. And working 

through our Community Affairs network of banks 

and non-profit organization partners across the 

country, these are organizations that are working 

with consumers. We were able to connect the IRS 

to hundreds of representatives from community and 

government organizations including those who work 

with many of the hardest to reach individuals and 

families.

These groups joined our webinars as 

well as our follow-on activities. One of the 
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organizations that tuned into these webinars and 

participated in our outreach with the IRS was the 

Commissioner of the Division of Financial 

Institutions in Hawaii. And in response to our 

call to action, she sent informative messages 

through social media to non-profit organization 

or partners across the state who, in turn, shared 

the information with consumers at food 

distribution locations, child care agencies, and 

shelters. She also included a call to action in 

her state governor's weekly update which is 

shared across all of that state's agencies.

And this is what I call kind of the 

network effect and, of course, our network of 

partners includes you. Your networks include 

agencies and non-profits who can then directly 

reach out to individuals and families who need 

information and then, in turn, can take the 

action they need to take in order to access the 

assistance they're entitled to. And of course, 

this is just one example of ways that we can work 
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together. Next slide, please.

So just to reiterate, we see an 

account relationship as foundational and with a 

quality banking relationship, consumers build 

confidence as they save and qualify for credit to 

meet their goals, whether it's purchasing a home 

or starting a business. And something many 

persons may have taken for granted, at least 

until just recently, having a bank account makes 

it simpler and easier to get funds quickly, 

safely, and directly deposited into your bank.

So how do we make this happen, 

especially for those who need it the most? I 

think there are three things that we can all do. 

One is increase the number of banks offering 

sustainable low-cost transaction accounts. Two, 

work to strengthen the local coalitions that 

reach people without a bank account but who are 

positioned to benefit from a banking 

relationship. And three, expand our 

communications that can raise awareness of 
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banking opportunities and benefits among those 

that don't yet have a banking account.

And these three efforts reinforce each 

other. The more banks that offer consumerfriendly accounts and participate in local 

coalitions or financial empowerment programs or 

the FDIC's Alliance for Economic Inclusion, the 

stronger those organizations are. And the more 

opportunities that are made available to 

consumers and the more that we promote them, the 

more consumers can take advantage of them. And 

of course, the more success stories we have, then 

that creates the incentives for more banks to 

join the effort, and so the cycle continues and 

gathers momentum as we go.

The FDIC is doing its part through our 

Community Affairs teams. We have been working 

with banks and with community-based coalitions 

for years. We support BankOn coalitions as well 

as our own alliances for economic inclusion. And 

in January, we're going to pilot a targeted 
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public awareness campaign in three cities to 

learn what messages resonate for consumers and 

what channels work best to reach them.

So I would like to ask you today to 

just think about the following: if you could 

consider the opportunities that you have to 

encourage banks to learn more about accounts that 

work well for those who don't yet have a banking 

relationship. Can you help us connect banks to 

local coalitions that will help connect them to 

these consumers, working through our Community 

Affairs teams throughout the country? And 

lastly, can you work with us to get the word out 

to both banks and consumers about the benefits of 

a banking relationship? And to the extent that 

you are already engaged in this effort, let me 

know so I can share your successes with others 

and inspire them to do the same. 

I want to thank everyone for the 

opportunity this afternoon to share my enthusiasm 

for expanding account access. I'm going to give 
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the floor back to Emerson, and he's going to talk 

to you about financial education and wrap us up.

MR. HALL: Thank you, Liz. Really 

appreciate it. So financial education is central 

to the FDIC's efforts to expand economic 

inclusion and promote confidence in the banking 

system. Effective financial education helps 

people gain the skills and confidence necessary 

to sustain a banking relationship, achieve 

financial goals, and improve financial wellbeing.

Through Money Smart, the FDIC offers 

non-copyrighted, high-quality free financial 

education resources for banks and other 

stakeholders to train people of all ages and 

small business owners. In response to the 

pandemic, we pivoted outreach early in the year 

to help Money Smart Alliance members use Money 

Smart tools remotely. We have seen banks take 

Money Smart and create YouTube videos for their 

markets, engage high school students for a summer 
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competition to customize Money Smart for their 

market while also conducting sessions virtually. 

We share best practices with bankers that are 

considering ideas of how to use Money Smart in 

their community.

For starters, early this year we 

highlighted a bank that supported a community 

reintegration program for non-violent offenders. 

The bank uses Money Smart to help the individuals 

learn useful financial strategies to assist with 

their transition into society. The bank and its 

community partners recognized the value of the 

program, and they elected to expand their work to 

reach more individuals.

We have seen other banks be successful 

about having partnerships with community-based 

organizations in other communities as well. 

Banks use our older adult curriculum in 

collaboration with senior centers, but also more 

recently and ongoing, as a resource to enlighten 

the adult children of senior citizens. We have 
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seen the curriculum be used as a resource for 

bank blog posts and other bank-produced messaging 

for consumers.

Banks can also reach out to their 

local SBA district office to explore 

opportunities for delivery of Money Smart for 

Small Businesses.

We're seeing successful, virtual 

training sessions underway during the pandemic. 

We're seeing these on a regular basis.

We encourage the expansion of 

engagement in states between state treasurers, 

bank trade groups, bank education officials, and 

state banking supervisors on developing and 

implementing statewide initiatives to support 

school-based savings programs.

The FDIC can be a resource as we have 

a technical assistance network for banks 

interested in starting or growing a youth savings 

program as well as proven successful strategies 

banks can use to get their programs started. We
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have 80 banks throughout the country that 

participate in our youth banking network. We 

provide resources for banks that have an interest 

in training their staff through our train-thetrainer initiative. We provide connections 

through the Money Smart Alliance and our youth 

banking network free, and they're easy to join.

We know that financial education is 

most successful when tied to real-life 

experiences such as buying a home, starting a 

business, or beginning a banking relationship.

For banks that want to integrate any 

component of our Money Smart program into their 

offerings, we're delighted to help and provide 

examples of those that have done so successfully.

We do look forward to continuing our 

working relationship with many of you and 

establishing meaningful working relationships 

with more of you in the future. We want to thank 

you for your attention this afternoon and your 

time, and we'll be pleased to answer any 
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questions that you might have.

MR. DAVIS: Great. Do we have any 

questions from the group? I think there might 

be a hand or two raised from the last session, so 

I won't call you out individually, but if you did 

intend to raise your hand this time, please just 

go ahead with your question.

(No response.)

MR. DAVIS: Okay. I think that may 

wrap up the session then unless anybody comes 

forward with a question quickly, but not seeing 

any. So Emerson, Liz, thank you very much, 

appreciate the presentation.

MR. HALL: Thank you.

MR. DAVIS: Before we conclude, 

Director Gruenberg, did you have any closing 

comments?

DIRECTOR GRUENBERG: Thank you, Chad. 

Just to say that I very much appreciate the 

participation of all the Commissioners, and I 

highly value the comments that they made. And 
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it does seem to me that the level of uncertainty 

going forward for the coming year is 

extraordinary. And from my standpoint, for 

reasons that I think we all understand, 2021 may 

be a more challenging year for the banking 

system, even more challenging than 2020 was, 

which to me, only underscores the importance of 

our working relationships at the state and 

federal level. So I very much look forward to 

our ongoing interactions and mutual support 

during a pretty challenging time. Thank you, 

all, for taking part today and thank you, Chad.

MR. DAVIS: I'll turn it over to the 

Chairman for closing comments.

CHAIR McWILLIAMS: Thank you, Chad. 

Thank you, Marty. Thank you to all the staff. 

Thank you, Commissioners. Truly, to say that we 

couldn't do our jobs as holistically as we do 

without your efforts on the ground would be an 

understatement. The visibility that you provide 

to us for a number of economic issues that your 
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banks are facing, as articulated today in a 

number of discussions, is a valuable tool for us 

to be able to serve those communities, examine 

those communities in tandem with you, and to 

continue to think about the banking system more 

holistically and in a way that makes sense both 

from the state perspective and the federal as 

well. So thank you for your participation today. 

I know how busy you are. I know you have plenty 

of things to do on the ground.

Again, my sincere apology that we have 

not been able to do this sooner, but we promise 

to stay on time now and meet more often. And I 

have to tell you I personally miss seeing you 

during my state visits. So the virtual ones have 

been fine but not as good as seeing you in person 

with the banks that you supervise and being able 

to get that feedback. So I can't wait for that 

to continue, and I will just say I wish you my 

best. In the meantime, stay healthy and thank 

you for your collaboration and cooperation with 
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us. And with that, I will say God bless you and 

see you soon. Thank you.

(Whereupon, at 4:53 p.m., the aboveentitled matter was concluded.)