Federal Reserve Governor Jerome H. Powell said last week at the Community Banking Research Conference in Missouri that while the conference has presented valuable research related to community banking, some areas can be improved.
The conference—the first of its kind—brought together community bankers, academics, policymakers and bank supervisors to discuss the challenges and opportunities facing community banks. Research related to the community banking industry was presented, along with the findings from a number of town halls hosted in the spring and summer.
Powell said it would be “interesting” to explore the impact of risk-retention on community banks and whether the policies would have a burdensome impact on the institutions.
“These questions point to a more general area in which more research could be useful, namely a detailed examination of the compliance costs for community banks that can highlight the most beneficial areas for regulatory relief,” Powell said. “Which regulations—whether new or existing—impose the greatest regulatory burden compared to their benefits? Can regulatory agencies modify or provide exemptions to these regulations so as to make life a bit easier and more profitable for community banks, without adversely affecting bank safety and soundness or financial stability?”
Powell pointed to incentive compensation as an example, saying the area is more concerning to him when the differences between a money-center bank and community bank are taken into account.
“Before imposing more regulatory burden on smaller banks in this area, I would like to understand whether there is any evidence that incentive compensation has caused excessive risk taking in such institutions,” Powell said, adding that regulators will continuously assess the impact of new rules on the safety and soundness of community banks. “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.”