Turning to today’s conference theme of “On the Horizon for Community Banking,” I have a few observations that I’d like to share. These observations, in part, preview the day’s agenda and I look forward to the continued conversation on these important issues. First, our country and the banking industry have benefitted from steady economic growth, modest inflation, and low unemployment in recent years. These are all positive and welcome outcome, but not all regions have benefitted equally here in the Second District. Some portions of upstate New York have benefitted from an influx of technology companies and other industries, while other regions remain challenged due to a lack of population growth. Later today we will hear from two of our economists who will share national and regional economic trends. Also in the spirit of looking forward, I can share some views on what community bankers can expect from the supervisory process. Examiners are keenly focused on emerging trends around funding costs and liquidity risks. Bankers consistently share with us the challenge of raising core deposits to fund loan growth. Community banks compete not only with other community banks for deposits, but also with credit unions and larger institutions. And, these larger counterparts are actively courting customers through direct mailers and offering competitive rates. Data in the Second District show cost across most deposit categories have increased with a slight uptick in the higher cost funding sources such as borrowings. Data for the largest banks exhibit a comparable trend, but they control a larger market share.

We will also discuss the challenges you share around keeping abreast of consumer compliance requirements. During today’s luncheon, our head of consumer compliance will share remarks on recent enhancements to the examination process. I’d like to close with a few words about a specific topic that is core to the community bank 2/3  BIS central bankers' speeches  business model, namely attracting new customers and growing deposits. I believe success in the area will be increasingly linked to a willingness to invest in technology and new processes. Customers today seem to prefer online banking, and millennials favor alternative banking options. This suggests both an opportunity and a strategic imperative. There may be no better time than now to reimagine transformation through investments in innovation, improved multichannel delivery, more fintech partnerships, and expansion of digital payments. Technologies to enable transformation are more powerful, readily accessible, easily implementable, and economical than ever before. Of course, these new activities bring risk management and legal issues and challenges to consider—vendor management, data privacy, consumer protection and cybersecurity to name just a few. To conclude, and again to echo the “on the horizon” theme of the conference, I believe we all need to be mindful of this new financial landscape as community banks strive to retain control of the customer experience. This is critical to the relationship-based business model of many community banks and reflects the unique local knowledge of the market and customer needs. As the industry evolves, this poses some challenges but also opportunities.