ST. LOUIS — The Federal Reserve Board is paying close attention to the competitive climate surrounding small banks, including the dearth of new charters in recent years.

Those assurances were part of opening comments by key Fed officials at the central bank's second annual conference on community banking, held in conjunction with the Conference of State Bank Supervisors. The key takeaway early in the conference is that community banks matter and the regulators are monitoring issues that threaten the industry.

"Community banks are important to the economy … but we all know that their business model is under pressure," James Bullard, president and chief executive of the Federal Reserve Bank of St. Louis, told attendees.

"One important measure of success is the degree to which we broaden the dialogue on community banking and promote further thinking in this sector," Bullard said, alluding to the conference designed to bring supervisors, bankers and academics together. "I've always believed that good research leads to good policy."

Research topics will include how Washington's policies on commercial real estate lending influenced lending before the 2008 financial crisis and a look at the Small Business Lending Fund. Another important paper will look at the factors that are restricting de novo activity.

"Those of us at the Fed pay a great deal of attention to [new bank charters] because it is the primary source of new competition in the markets in which community banks compete," Fed Gov. Jerome Powell said.

Powell also referenced the challenges community banks face, despite an improving economy, including regulatory compliance burdens that "can be particularly daunting" and competition from larger banks, credit unions and nonbanks.

The Fed unveiled a pair of initiatives designed to strengthen its rapport with community banks and their leaders. Bullard said the Fed is preparing a pilot program intended to revitalize training for bank directors; it will be based on an existing program offered by the Federal Reserve Bank of Kansas City.

Powell, who chairs the Fed's subcommittee smaller regional and community banking, plans to conduct a national webinar with community bankers on Oct. 22. Powell noted that he also made time during last year's community banking conference to meet with St. Louis bankers to better understand what they were facing.

"I find these types of conversations — with people who live and work in the world outside Washington and Wall Street — to be enormously enlightening," Powell said.

The early remarks were largely intended to show that key Fed officials recognize the value of community banking and the uniqueness of small banks' operating model.

"Community banks differ from their larger cousins, not just in size, but in the fundamental focus of their business," Bullard said.

"Close ties give community bankers a clear advantage in understanding local needs and tailoring their products and services to meet those needs," Bullard said. "I have never worked at a community bank; however, I have been a community bank customer, and in that role I have had personal experience interacting with bankers whose mission is to provide high quality of service to every customer who walks in the door."

 

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