Ben S Bernanke: Brief welcoming remarks - "Community Banking in the
21st Century"
Remarks by Mr Ben S Bernanke, Chairman of the Board of Governors of the US Federal
Reserve System, at the "Community Banking in the 21st Century", a conference
co-sponsored by the Federal Reserve System and the Conference of State Bank
Supervisors, St. Louis, Missouri, 2 October 2013.
* * *
I would like to welcome everyone to the inaugural Community Banking Research and Policy
Conference, co-sponsored by the Federal Reserve System and the Conference of State
Bank Supervisors (CSBS). I particularly want to thank the Federal Reserve and CSBS staff
members who worked hard to organize this event. By bringing together community bankers,
bank regulators, and researchers from academic institutions and government agencies, the
conference will help us all to better understand the issues that are most important to the
future of community banking. You may have noticed that I referred to this as the "inaugural"
conference. Although firm plans have not yet been made, I do hope this will be the first of
many joint Federal Reserve System and CSBS conferences that focus on community
banking research and policy.
The U.S. banking system has undergone significant consolidation over the past two decades
or so, with very large banking organizations increasing their market shares. Nevertheless,
community banks (which we typically define as banking institutions with assets of $10 billion
or less) continue to provide vital financial services to households, small businesses, and
small farms in communities across America.
Community banking is fundamentally a local, relationship-based business. Community
bankers live in the localities they serve; their customers are their neighbors and friends. Their
direct, personal knowledge of the local economy enables them to tailor products and services
to meet their communities' needs. They can look beyond credit scores and other
modelbased metrics to make lending decisions in part based on more qualitative information that
large regional or national financial institutions are less well suited to consider. Community
bankers recognize that their own success depends on the health of the communities they
serve, which is why so many community bankers contribute locally as citizens and leaders as
well as in their capacities as lenders and providers of financial services. The photos that you
see around the conference center do a very nice job of capturing the spirit of community
banking and illustrating the contributions of community bankers.
Although community banks have some natural advantages, such as local knowledge and
relationships, they also face significant challenges. As battle-scarred survivors of a financial
crisis and deep recession, community bankers today confront a frustratingly slow recovery,
stiff competition from larger banks and other financial institutions, and the responsibility of
complying with new and existing regulations. Some observers have worried that these
obstacles - particularly complying with regulations - may prove insurmountable. My
colleagues at the Federal Reserve and I understand these concerns, and we are committed
to crafting supervisory policies and regulations that are appropriately scaled to banks' size
and complexity. And we have confidence that the remarkable resilience of America's
community bankers will enable them not only to survive, but also to thrive in the years ahead.
The best way to understand the challenges that community bankers face is to talk to the
bankers themselves, and we at the Federal Reserve do that regularly. For example, to
ensure that we remain mindful of the unique characteristics of community banks, the Federal
Reserve Board established the Community Depository Institutions Advisory Council. This
council is composed of representatives of community banks, thrifts, and credit unions from
each of the 12 Federal Reserve Districts. Members of the council meet with the Board twice
a year, bringing to us the views and concerns of their colleagues back home. Our meetings
with the council have been extremely informative and have improved our ability to
understand and respond to community bank concerns.
Of course, understanding those concerns is of limited value unless we use what we have
learned in the process of rulemaking. To make that connection, we also established a
subcommittee of the Board that reviews all regulatory and supervisory proposals for their
potential effects on community banks. The subcommittee also has worked toward
communicating more effectively with the industry regarding the extent to which new rules and
guidance do, or do not, apply to community banks. I hope those efforts are helping
community bankers avoid spending time trying to understand rules that do not apply to them.
One of the strengths of the Federal Reserve System is the quality of the research done by
our economists and other professionals. The research we do on community banking helps
guide our thinking on regulatory matters and on broader economic trends. In particular, the
Board's subcommittee on community banking is regularly briefed on relevant research being
conducted across the System. Thus, research findings inform policy, and policy concerns
guide research. In fact, after learning about several research projects, the subcommittee
suggested that the staff hold a community banking research conference - a suggestion that
brought all of us to St. Louis today.
The range of topics that will be covered over the next day and a half is impressive. The first
research session this afternoon will focus on the role of community banks in our financial and
economic system. Papers in this session examine whether community banks influence
newfirm survival, whether equipment finance is a potential growth area for community banks,
how community bank failures affect local economic performance, and whether community
bank lending relationships in rural areas are fundamentally different from those in urban
areas.
Two research sessions are scheduled for tomorrow morning. The first will consider
community bank performance, with papers looking at the effect of financial derivatives on
community bank profitability, the characteristics of community banks that recovered from
significant financial distress, the effect of distance between merging banks on postmerger
performance, and the determinants of differences in profitability across community banks.
The second session will consider issues of bank supervision and regulation, with papers
discussing variations in the stringency of bank examination standards over time and their
effect on lending, the effects of the Dodd-Frank Act on community banks, the relationship
between community bank capital ratios and the likelihood of failure, and an approach for
rationalizing bank supervision and regulation.
As you can see, the papers at this conference cover a variety of important topics, and I
expect they will provoke spirited discussions among the many experts in attendance. I must
say that I am encouraged to see so many researchers from a wide range of academic and
government institutions working on issues of great interest to both community bankers and
their regulators.
To close the conference, CSBS Chairman Charles Vice will present a report summarizing
information gathered from more than 1,500 community bankers attending town hall sessions
across the country over the past several months. In addition, a panel of community bankers
will share their own views on the state of community banking and prospects for the future.
Thank you for being here. I wish you an enjoyable and productive conference.