between regulators and the supervised institution, banks are more likely to communicate throughout the examination cycle to inform supervisors of changes they may be considering or challenges they may be facing and how best to resolve or approach them from a regulatory perspective. a final principle that flows from consistency, transparency, and fairness is that rules and supervisory judgments must have a legitimate prudential purpose, and in the majority of cases must not be solely punitive. the goal should be to encourage sound business practices and activities by supervised institutions. by clearly communicating our objectives, we build respect for the rules and make it more likely that any remedial actions against an institution will not be necessary because we encourage compliance through our supervisory approach. when a supervisory action or formal enforcement action is required to address violations at an institution, those actions should be framed in a way that seeks to promote safe, sound, and fair practices and not simply as punishment. these principles that guide my approach to regulation and supervision are consistent with many of the major steps that the federal reserve has taken to improve community bank oversight since the implementation of the rules following the 2008 financial crisis. some predate my arrival at the fed, and some i have played a significant role in achieving. most of these actions involve tailoring rules that treated community banks in the same way as larger, more complex institutions. for example, the volcker rule was aimed at curbing proprietary trading by large banks, but it ended up creating significant compliance costs for community banks, which are not involved in this type of trading. many of the most important improvements to the federal reserve ’ s regulatory framework involve tailoring rules to fit to the size, business model, and risk profiles of community banks. for example, we raised the asset threshold for small banks to qualify for an 18 - month exam cycle and similarly raised the threshold for small bank holding companies to be exempted from consolidated risk - based capital rules. the concept of tailoring is also expressed in our community bank supervisory framework, which has been updated to implement the bank exams tailored to risk ( betr ) program. the betr program allows examiners to identify higher and lower risk activities and, in turn, streamline the examination process for lower risk community banks, thereby reducing burden. in fact, federal reserve examiners have tailored examinations by spending approximately 65 percent less time on low / moderate risk state member bank exams than they do on high - risk exams. we also implemented the community bank leverage ratio that allows institutions to opt out of risk -

t changed substantially over the past couple of decades. i believe we should consider revisions to that framework that would better reflect the competition that smaller banks face in an industry quickly being transformed by technology and non - bank financial companies. as part of this effort, we have engaged in conversations and received feedback from community banks about the board ’ s competitive analysis framework and its impact on their business strategies and longterm growth plans. we are in the process of reviewing our approach, and we are specifically considering the unique market dynamics faced by small community banks in rural and underserved areas. soon after the pandemic began early last year, the federal reserve took several actions to support community banks and their ability to help affected customers. we paused examinations and issued supervisory guidance that made it clear that we would not criticize or take public enforcement actions against a bank that was taking prudent steps to help customers and making good faith efforts to comply with regulations. this certainty of regulatory treatment created an environment that built trust between regulators and bankers. it enabled banks to continue to meet the needs of their customers who were struggling with circumstances through no fault of their own. let me conclude by again commending the important role that community banks have played in providing financial services during these challenging times. you responded quickly to the needs 3 / 4 bis central bankers'speeches of your customers and communities to provide financial services with limited, if any, interruption. you persevered to implement the largest proportion of paycheck protection program funds to small businesses, whether they were your existing customers or new customers. these relationships are the hallmark of community banking, and as we look toward the future, community banks will continue to play an essential role in supporting customers, delivering financial services, and providing resources to their communities and customers. let me stop here and thank the organizers for another opportunity to speak to you at this important conference. i look forward to your questions, rob. 4 / 4 bis central bankers'speeches