, i was rather dreading the conversation when i picked up the phone to call kathleen murphy, the president and chief executive officer of the maryland bankers association. but i was pleasantly surprised to hear her say that not only did maryland bankers want examiners who were well trained and held a level of expertise – so much so that they would pay for it – but that she would be willing to testify as such to the state legislature ’ s finance committee. that attitude underscores how the examination and supervision functions are embraced and factored into the business of being an excellent community bank. my perspective on the examination and supervision function has only deepened during my term as a governor at the federal reserve board. indeed, being a governor in the postfinancial - crisis era has made me much more sensitive to the importance of making sure we conduct examination and supervision in a way that helps ensure we think through potential consequences, such as unnecessarily hindering lending to creditworthy borrowers. access to credit, after all, is a critical factor supporting recovery in our economy. monetary policy and credit availability to gain some perspective on this issue, let ’ s set aside for a moment the beautiful eastern shore and the examiners in their new business - casual attire, taking the bus to the banks, and approach examination and supervision from the perspective of monetary macroeconomics and the federal reserve ’ s decision - making over the past several years. as most of you know, the economy began slowing in late 2007 and early 2008 and turned sharply downward in the autumn of 2008 when the financial crisis intensified, resulting in the worst recession in many decades. by the end of 2009, the unemployment rate reached a horrifying 10 percent, corresponding to more than 15 million americans being out of work, with all of the attendant social consequences – including lost income and wealth, mortgage foreclosures, family strains, health problems, and so on. officially, the recovery from the recession began in the third quarter of 2009, but the pace of recovery has been modest. moreover, we know that the recession was deeper and the recovery weaker than had previously been thought. the resulting financial strains on many businesses and households have been severe. this consequence is starkly evident in the recent pattern of loan delinquency rates. delinquency rates have been slow to return to their pre - recession levels, with some of these measures, such as those associated with certain categories of real estate loans, staying still quite elevated today.

implications for how large and complex banks should be supervised, as compared with community banks. notably, our supervision of large banks reflects the scope and complexity of their activities as well as their interactions with other firms and possible effects on financial markets, and incorporates systemic risk considerations that could arise from the failure of these banks. this circumstance requires regulators to make capital, liquidity, and risk - management standards more stringent for large banks than for community banks. these standards not only are being established internationally, but also are required for the largest institutions under the dodd - frank act. a critical part of this supervisory process is rigorous capital planning and stress testing to ensure that the largest institutions are capable of absorbing unforeseen shocks. the federal reserve, for example, requires the largest top - tier bank holding companies to submit annual capital plans and conduct rigorous stress tests as part of the comprehensive capital analysis and review exercise. 8 in recognition of their systemic importance, the largest firms also are required to plan for their own orderly resolution in the event that they should fail. because of their complexity and risk characteristics, these firms require intensive and continuous on - site supervision ; the federal reserve has dozens of full - time examiners on site at the largest banks to monitor their risk - management systems, strategies, and operations on an ongoing basis. in the years since the crisis began, our supervision of these firms has become arguably much more intensive, which i believe is perfectly appropriate given the effect that problems at the largest firms had on the financial system and the broader economy. you may be asking, what does this have to do with community banks? not very much – which is precisely my point. the community banking model is very different from that of the largest banks. community banks are local by their very nature. they have deep roots in their communities. their value proposition is that they are able and willing to take the time and effort to know and work with their customers in a way that may not be possible for a larger, more distant institution. this trait is particularly important when it comes to small business lending, where a local community bank may understand things about a prospective customer that cannot be captured in a more quantitative credit - scoring model that might be used by a larger institution. risks at community banks tend to arise from their lending activities, whether in the form of credit or interest rate risk, and a lack of diversification can exacerbate these risks. unlike large, complex banks, community banks typically do not rely on their investment