kevin stiroh : introductory remarks at the community bankers conference remarks by mr kevin stiroh, executive vice president of the financial institution supervision group of the federal reserve bank of new york, at the community bankers conference, federal reserve bank of new york, new york city, 18 april 2018. * * * on behalf of the federal reserve bank of new york, it ’ s my pleasure to welcome you to the 2018 community bankers conference. this is the third community bankers conference that i ’ ve attended since becoming the head of supervision at the new york fed and it is great to see the turnout continue to grow. this year we are fortunate to have nearly one hundred fifty representatives from community banks throughout the federal reserve ’ s second district and more than forty regulatory colleagues from multiple federal and state agencies. each year i look forward to this conference as it offers us, as regulators and supervisors, an unparalleled opportunity to exchange views and perspectives, to identify challenges and opportunities, and to promote a robust dialogue with senior managers and directors of smaller financial institutions in the second district. this type of constructive engagement is critical for us as we work to promote a safe and sound financial system that supports a strong economy. the theme of this year ’ s conference — “ navigating future risks for community banks ” — is centered on change, which is appropriate when one considers the broad set of forces transforming the u. s. financial system. as you all know, the banking industry is confronting a series of emerging challenges and environmental changes such as a rising interest rate environment, new businesses and technologies that may disrupt the traditional financial services industry, and novel cyber - threats that seek to exploit our highly interconnected society. in addition, over the past year or so, we ’ ve witnessed significant turnover in the leadership at federal regulatory bodies including the federal reserve, the fdic, and the occ, which has the potential to change the regulatory environment. and, finally on the legislative front, congress is currently considering the economic growth, regulatory relief, and consumer protection act, which if passed in current form would entail the most significant statutory change to the u. s. banking regulatory framework since the passage of the dodd - frank act in 2010. all of this change presents both opportunities and threats. for my remarks today, i ’ d like to explore three specific changes that are relevant for community banks : first, a shift in community banks ’ business models in response to market changes and regulatory pressures ; second, the growing competition and

phase to repair their balance sheets by paying down outstanding debt. during this “ great deleveraging, ” which lasted five years, households reduced their overall liabilities by 12 percent or $ 1. 5 trillion. house prices began to rise again in earnest in 2012, and by mid - 2013 household deleveraging appeared to have come to an end. net household borrowing resumed, and household debt has risen over 8 percent during the last couple of years. but, this recent period of credit expansion looks very different from the early 2000s, and i believe that the household sector today is in much better health. there are several reasons for my confidence. let me begin with the situation in the residential mortgage market, which plays such a dominant role in household finance and was such a problem the last time around. currently, house price growth is running nationally at around 5 percent per year. but this time, households appear to be much more cautious in how they are responding to the rise in home values. rather than borrowing against the rising equity in their homes, mortgage balances have instead essentially stabilized and remain well below their previous levels. as my colleagues will describe in more detail shortly, this stabilization reflects an increase in debt paydown due to a combination of lower interest rates, shorter loan terms and aging of mortgages. this trend is reflected in increased household saving and growing home equity, and we expect these trends to continue to help households rebuild their balance sheets over the near term, thereby further increasing the household sector ’ s resiliency to shocks. low interest rates have also been important in driving the household debt service ratio to the lowest levels observed in our data. this means that households have more capacity with which to absorb any temporary adverse income shocks. one clear reflection of these improvements is the very significant decline in delinquency rates. at this point, the great majority of the bad debt from the boom years has been charged off and new foreclosures are at the lowest level we ’ ve seen in our data. the combination of charge - offs and tight mortgage underwriting standards over the last several years has shifted the stock of outstanding mortgage balances toward lower - risk borrowers, who are typically older with more stable incomes. for all these reasons, the household sector looks much better positioned today than in 2008 to absorb shocks and continue to contribute to the economic expansion. now, before asking my colleagues to discuss some of these trends in more detail, let me note that my positive overview of the household sector comes