jerome h powell : community banks in the united states introductory remarks by mr jerome h powell, member of the board of governors of the federal reserve system, at the community banking research and policy conference, co - sponsored by the federal reserve system and conference of state bank supervisors, st. louis, missouri, 23 september 2014. * * * it is a pleasure for me to join jim bullard and john ryan in welcoming all of you to the second annual community banking research and policy conference, co - sponsored by the federal reserve system and conference of state bank supervisors. i had the privilege of addressing the inaugural community banking conference held here last year, and as chairman of the federal reserve board ’ s subcommittee on smaller regional and community banking, i am delighted to return to this venue to participate in this year ’ s event. 1 as all of you surely know, community banks play a vital role in america ’ s financial system, providing essential services to households, small businesses, and small farms in communities throughout the country. community banks differ from their larger cousins, not just in size, but in the fundamental focus of their business. community bankers ’ primary objective is to serve the members of their local communities, who are not only their customers but also their neighbors and friends. they have strong links to the people and businesses that reside in their communities, as well as direct knowledge of local economic conditions. these close ties give community bankers a clear advantage in understanding local needs and tailoring their products and services to meet those needs. i will confess that i have never worked at a community bank ; however, i have been a community bank customer, and in that role i have had personal experience interacting with bankers whose mission is to provide high quality of service to every customer who walks in the door. despite the advantages that i just mentioned, life is not always easy for community bankers. the number of community banks in the united states has declined sharply over the past three decades, due to a combination of failures and acquisitions. 2 and many remaining community banks have struggled to survive, especially during the last five or six years. although improving overall economic conditions have begun to provide some relief to these struggling banks, they continue to face significant challenges. the burden of regulatory compliance can be particularly daunting for small banks. and competition, from large banks and credit unions as well as other nonbank financial service providers, is always a concern. my colleagues on the federal reserve board and i are committed to making sure that we understand the challenges

across the euro area are afforded a uniform level of protection wherever they are located. at the same time, legacy issues will need to be addressed to ensure a level playing field and to mitigate moral hazard. tackling these legacy issues should proceed in parallel with the establishment of an european deposit insurance scheme ( edis ). deposit insurance kicks in only at the very end of a bank ’ s lifetime, once it is already undergoing insolvency proceedings or is in the process of being resolved. recent events, including in the polish banking sector, have reminded us of the importance of having an effective toolkit to deal with failing banks, including at the early intervention stage. 4 the bank recovery and resolution directive ( brrd ) – which has yet to be transposed into polish law – provides just such a toolkit, giving the supervisor the necessary tools, for example, to require a bank in difficulty to take the necessary recovery action. if early intervention proves unsuccessful, a bank may need to be resolved, without disrupting financial stability and the real economy but also without taking recourse to taxpayers ’ money. in this respect, the brrd provides for the necessary resolution powers and tools, as well as for substantial loss - sharing procedures with the stakeholders of the failing bank. going forward, it will be essential for both investors and banks to have certainty on the overall level of capital requirements and the application of the new resolution framework. in this respect, consistent implementation of the minimum requirement for own funds and eligible liabilities ( mrel ) across the eu and implementation of total loss absorbing capacity ( tlac ) in the common eu framework will both be of great importance. regulatory certainty strengthening the regulatory framework through the single rulebook and establishment of the banking union have made europe ’ s banking sector and the financial system as a whole more stable and resilient. banks ’ capital positions have been strengthened ; leverage has been reduced ; and business models and funding models are continuing to be adjusted. we should not undo this achievement. now is the time to finalise the regulatory reform agenda and implement the remaining measures. this includes tlac but also the net stable funding ratio and the leverage ratio. banks need regulatory certainty. let me remind you of the message from central bank governors and heads of supervision that they would not significantly increase overall capital requirements across the banking sector in finalising international regulatory reforms. it is fully recognised by all public authorities that proper calibration of the regulatory burden needs to be ensured.