WASHINGTON — Federal Reserve Board Chairman Ben Bernanke on Friday reiterated the importance of community banks to the economy and the need to ensure regulatory burdens faced by small banks are minimized.
Testifying before the Senate Budget Committee, Bernanke said the intent of regulatory reform legislation was to keep a closer eye on large banks, not smaller ones.
"There is obviously a lot of work to be done to implement Dodd-Frank and Basel III and other changes in financial regulation," said Bernanke. "The intent of both Basel III and the Dodd-Frank Act is to focus on the largest, so-called too-big-to-fail banks and to make them not too-big-to-fail."
He said it is important community bankers are not overburdened.
"We want to make sure we do all we can not to increase the regulatory burden that small banks face," Bernanke said. "Small banks have been playing just an incredibly important role, particularly, as large banks have cut back on their lending to small business and in other contexts, they have in many cases stepped up and proven their worth to the U.S. economy."
Sen. Debbie Stabenow, D-Mich. echoed other Senators concerns when it came to the health of U.S. small businesses and community banks.
"It's critical that the Fed and other regulators help community banks take full advantage of the lending initiatives that we placed in the Small Business Jobs bill, and I wonder what actions the Federal Reserve is doing, and can do, to help small business," said Stabenow.
Bernanke said he will be participating in a panel discussion next week along with Federal Deposit Insurance Corp. Chairman Sheila Bair to discuss small business credit and the initiatives put forth by Congress and other banking regulators.
"We are very attuned to the need to have an appropriate balance," Bernanke said. "On one hand, we don't want banks making bad loans, that's how we got in trouble in the first place. But on the other hand, creditworthy borrowers need to have access to credit so that they can retire and they can expand and help the economy recover."
The chairman said the Fed has been working hard to help banks and their examiners take on a more balanced approach, and already has seen progress with standards easing a bit.
"There is some improvement, in my view, in the availability of credit and I expect to see more lending this year," he said.
Separately, when asked if he would be supportive of eliminating the central bank's dual mandate of maximum employment and price stability, Bernanke said the Fed is "not seeking any change." Still, he left the decision is ultimately up to Congress to make.
"We think the current mandate is workable," Bernanke said. "That being said, I think it's entirely appropriate for the Senate and the Congress to consider what mandate they want to set. There are, after all, central banks around the world that do focus primarily on price stability, and whatever decision Congress makes, of course, we will honor that decision and pursue that mandate."
