we were that last december congress amended the statutory provision that had prevented us from raising the threshold for application of our small bank holding company policy statement. i will not repeat here the purpose and history of this statement, which i described in advocating this change last fall. 6 i will note that earlier this month, the board issued a final rule implementing the statutory change. 7 the rule expands the scope of application of the statement from bank holding companies with less than $ 500 million in total consolidated assets to those with less than $ 1 billion, and adds savings and loan holding companies. as a result, our statement now covers nearly 90 percent of bank holding companies. we had already taken steps to relieve the regulatory reporting burden for the impacted firms – specifically, by eliminating quarterly and more complex consolidated financial reporting requirements for all of these institutions and eliminating certain regulatory reporting requirements entirely for savings and loan holding companies with less than $ 500 million in assets. 8 second, i want to reiterate my view that a few dodd - frank act provisions might usefully be amended to exclude community banks entirely from their coverage. as i have said before, the concerns addressed by provisions such as the volcker rule and the incentive compensation requirements of section 956 are substantially greater at larger institutions. in the unusual case in which a small bank is engaged in proprietary trading that could pose a risk to the deposit insurance fund or has in place a compensation system that incentivizes excessive risk, the supervisory process would remain available to address these risks. i recognize that statutory revisions of this sort would not be a major reduction in compliance burden. but they would reflect the fact that, absent a change in this regard, community banks see daniel k. tarullo ( 2014 ), “ a tiered approach to regulation and supervision of community banks, ” speech delivered at the community bankers symposium, chicago, november 14. 80 fed. reg. 20153 ( april 15, 2015 ). 80 fed. reg. 5666 ( february 3, 2015 ). bis central bankers ’ speeches must expend scarce compliance resources to conform to the requirements of such regulations. there is, in my view, no need to make particularized prudential requirements of this sort applicable on a mandatory basis to thousands of community banks. indeed, the volcker rule and the dodd - frank act incentive compensation provisions present almost prototypical cases in which minimal potential safety and soundness benefits are outweighed by the compliance costs faced by those thousands of banks. it would

tiering. the two most important characteristics of community banks for purposes of establishing regulatory objectives and supervisory practices are their size and their business model. my reference to size is obviously a bit tautological, but size is worth emphasizing precisely because of what it says about the risks community banks do not pose. the possible failure of a community bank self - evidently poses no risks to the financial system. and while individual community banks in smaller communities provide sources of credit that would be hard to replace, their limited size means their failures would not result in credit contraction in significant swaths of the country. see, e. g., daniel k. tarullo ( 2015 ), “ application of enhanced prudential standards to bank holding companies, ” testimony before the committee on banking, housing, and urban affairs, u. s. senate, washington, march 19 ; daniel k. tarullo ( 2014 ), “ a tiered approach to regulation and supervision of community banks, ” speech delivered at the community bankers symposium, chicago, november 14 ; and daniel k. tarullo ( 2014 ), “ rethinking the aims of prudential regulation, ” speech delivered at the federal reserve bank of chicago bank structure conference, chicago, may 8. bis central bankers ’ speeches the business model of nearly all community banks is grounded in the most traditional form of commercial banking – lending to businesses and households with funds predominantly obtained from deposit accounts. and, as this audience well knows, lending by community banks is built substantially on relationship banking. while community banks over the years have found it increasingly difficult to compete with larger banks in the types of lending that can be efficiently scaled through larger volumes and standardized credit models, they maintain a competitive advantage relative to larger banks through knowledge of their local communities and their individual borrowers. as a result, community banks play a unique role in their local economies, particularly with regard to lending to small - and medium - sized businesses. the relationships these institutions have with their customers oftentimes mean they can look beyond traditional credit factors to consider unique borrower characteristics when making credit decisions and to reduce information failures about borrowers ’ willingness and capacity to repay loans. numerous studies have documented these advantages and their value to economic development. one recent study found that loans extended by rural community banks to small businesses default less frequently than similar loans granted by their urban counterparts, and that the performance advantage is greater when the bank and the borrower are located in the same county. 2 the traditional inter