, liquidity, and risk management – apply only, or principally, to the largest, most complex, and internationally active banks. these new standards are not meant to apply to, and clearly would not be appropriate for, community banks. we will work to maintain a clear distinction between community banks and larger institutions in the application of new regulations. conclusion to conclude, i would like to reemphasize the importance that my colleagues on the board and i place on the federal reserve ’ s relationship with community banks. the fed is committed to fair, consistent, and informed examinations that take into account the size, complexity, and individual circumstances of each bank we oversee. we will do all we can to support the banks ’ safety and soundness and eliminate unnecessary costs. despite economic uncertainties, the condition of community banks is improving. that ’ s good news not only for banks, but for their communities and the national economy as well. thanks, and enjoy the rest of your meetings. bis central bankers ’ speeches

the lessons of the crisis and are determined not to repeat the mistakes of the past. credit metrics are now improving in most banks as problem loans have been addressed and resolved and new credit underwriting has been quite restrictive for a number of years. deposit growth has outpaced loan demand and reliance on wholesale funding has been reduced. capital positions are stronger. the interest margin pressure banks face today is partly due to low interest rates and partly due to weak loan demand, both of which are consequences of a sluggish economy. as the economic recovery gains momentum, however, both of these conditions should reverse and give bankers the opportunity to deploy the liquidity and capital they have amassed to the benefit of their shareholders and their local economies. community bankers are being heard even as they anticipate economic recovery, however, community bankers worry that the burden of new regulations may inhibit their ability to lend in their communities or prohibitively increase the costs of such lending. we certainly understand this concern. federal reserve research over the years has confirmed that the burden of regulations falls disproportionately on smaller banks. bis central bankers ’ speeches supervisors at the federal reserve bank of minneapolis have recently tried to quantify this effect. to do so, they used survey data to estimate the relative number of new employees that banks of different sizes might need to hire in response to the same regulatory requirement. using call report data from 2011, they estimated in their preliminary analysis that hiring one additional employee would reduce the return on assets by 23 basis points for the median bank in the group of smallest banks, those with total assets of $ 50 million or less. to put this estimate in perspective, such a decline could cause about 13 percent of the banks of that size to go from profitable to unprofitable. as a comparison, given the same increase in regulation, they assume banks between $ 500 million and $ 1 billion would hire three employees and experience a decline of about 4 basis points in return on assets for the median bank. while this is still a significant effect, very few banks in this group would go from being profitable to unprofitable as a result of the regulatory burden. regulatory overreaction to a crisis is always a risk. but this time, i think community bankers have been more successful than they realize in making the case against “ one - size - fits - all ” regulation. i can ’ t remember a time when i have seen more regulatory proposals drafted that differentiate between banks based on size or complexity.