should be brought to the attention of our examiners, because even a slight tightening of standards can have a significant effect on credit markets, especially if combined with other supervisory actions, and a tightening at the beginning of a recession could cause it to be deeper or longer than might otherwise be the case. marsh and norman highlight the need to avoid requiring excessive standardization of bank loans. such standardization could interfere with effective relationship lending, and as we ’ ve seen from the research i ’ ve already discussed, that relationship lending is a key aspect that makes community banks such valuable assets to small businesses and so important to a thriving economy. the marsh and norman paper stresses that, to the extent the laws allow, we should reduce compliance costs for community banks, such as by simplifying capital rules for smaller banks and relying on market incentives, when feasible. the moore and seamans results from their failure - prediction model contribute to this discussion by demonstrating that simple capital ratios do a good job of identifying those community banks with the greatest probability of failure, so that regulators need not unduly impede the actions of the great majority of community banks that are highly unlikely to fail. meanwhile, the rosenblum and organ paper argues for an alternative approach to addressing “ too big to fail ” that the authors suggest would benefit community banks by creating a more level playing field. although both the traditional bank regulatory agencies and the consumer financial protection bureau ( cfpb ) are constrained, to some extent, by the language in the doddfrank act, all regulators should aim to ensure that we are not unduly rigid in our actions. indeed, some steps have already been taken with that goal in mind. for example, the federal banking agencies carefully considered the thousands of comments received from community bankers regarding three notices of proposed rulemaking for revisions to the capital framework. in response to these comments, the agencies reduced and simplified many of the proposed changes to the risk - based capital rules that apply to community banks. and the cfpb has shown an openness to input from the industry and from other regulators in crafting its regulations. in our role as a bank supervisor, the federal reserve has been refining our examination programs and recently launched an initiative to review our consumer compliance supervision program for community banks. while federal reserve consumer compliance examiners have traditionally applied a risk - driven approach to supervision, we recognized the need to provide more specific guidance to our examiners. under the updated program, our consumer compliance examiners will base the examination

assess the overall effects of the new rules on the safety and soundness of community banks and to consider whether modifications to rules, or the ways in which we implement them, could achieve our safety and soundness aims with a lesser burden on this class of depository institutions. we, of course, would value any observations and suggestions you have along these lines. my fellow governors and i encourage community bankers to use all the available communication channels to share with us their insights and concerns regarding new and existing regulations. and i promise that their voices will be heard in washington when policy issues that may affect the ability of community banks to thrive are under consideration. while community banks certainly face challenges, i do not see their future as bleak. community banks continue to do a good job of attracting core deposits, and those stable and relatively inexpensive deposits remain the most sought - after liability on bank balance sheets. however, many of the asset classes that traditionally comprised much of community bank portfolios have faced increasing competition in recent decades from firms that operate at the national level. as auto, mortgage, and credit card loans have become increasingly standardized, community banks have had to focus to a greater extent on small business and commercial real estate lending – products where community banks ’ advantages in forming relationships with local borrowers are still important. these are not cheap or easy loans to make, and the loss of some traditional product lines has threatened the stability of some community banks. it is incumbent on the federal reserve and other regulators to understand bis central bankers ’ speeches the challenges community banks face and to ensure that our regulatory policies do not exacerbate them. i look forward to hearing from the community bankers who will be participating in the conference ’ s final session. thank you for your attention and for your participation in this inaugural community banking conference. i would be happy to take some questions from the audience. bis central bankers ’ speeches