Federal Reserve Chairman Ben Bernanke said on Wednesday that while community banks benefit from their client relationship model and local knowledge, the institutions also face a number of challenges.
“Community banking is fundamentally a local, relationship-based business,” Bernanke said. “Community bankers live in the localities they serve; their customers are their neighbors and friends. Their direct, personal knowledge of the local economy enables them to tailor products and services to meet their communities’ needs. They can look beyond credit scores and other model-based metrics to make lending decisions in part based on more qualitative information that large regional or national financial institutions are less well suited to consider.”
Bernanke said community banks are forced to deal with staggeringly slow economic recovery, greater competition from bigger banks and the responsibility of complying with new regulations, including the Basel III capital rules.
“Some observers have worried that these obstacles–particularly complying with regulations–may prove insurmountable,” Bernanke said. “My colleagues at the Federal Reserve and I understand these concerns, and we are committed to crafting supervisory policies and regulations that are appropriately scaled to banks’ size and complexity. And we have confidence that the remarkable resilience of America’s community bankers will enable them not only to survive, but also to thrive in the years ahead.”
Additionally, Bernanke said the best way to understand the challenges facing community bankers is to reach out to them, pointing to the Community Depository Institutions Advisory Council, which is comprised of representatives from credit unions in each of the Fed’s 12 districts.
“Of course, understanding those concerns is of limited value unless we use what we have learned in the process of rulemaking,” Bernanke said. “To make that connection, we also established a subcommittee of the Board that reviews all regulatory and supervisory proposals for their potential effects on community banks… One of the strengths of the Federal Reserve System is the quality of the research done by our economists and other professionals. The research we do on community banking helps guide our thinking on regulatory matters and on broader economic trends…Thus, research findings inform policy and policy concerns guide research.”