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The Federal Reserve Board said Monday it is considering offering certain smaller-sized financial institutions more time before they have to undergo an annual stress test.
August 27 -
Bowing to pressure from community bankers, regulators extended the comment period on a set of proposals that will lift banks' minimum capital requirement to 7%.
August 8
WASHINGTON — The Federal Reserve System unveiled a new publication and
In the publication, Bernanke sounded sympathetic to small bank concerns that they have been encouraged to lend more while at the same time facing heightened criticism about the quality of credits.
" I understand that there can be an apparent tension between community banks' desire to lend and their need to make prudent risk management decisions, but I do not believe that there is a simple trade-off between the two," he said in the inaugural issue of Community Banking Connections. "If anything, you can make a case that weak risk management may, over time, lead to less lending — and vice versa — because banks must maintain safe and sound operations in order to provide for the financial needs of their communities."
Bernanke also discussed the current challenges facing community banks, the regulatory burdens they face due to the Dodd-Frank Act, and the importance of the survival of the traditional community banking model.
"Community bankers tell us repeatedly that they are concerned about the changing regulatory environment," said Bernanke. "They touch on a number of areas, but one particular worry is the implementation of the Dodd-Frank Act."
Bernanke and other members of the Fed board have repeatedly sought to assure community bankers that many of the provisions in Dodd-Frank won't apply to community banks.
"The Dodd-Frank Act was enacted largely in response to the 'too-big-to-fail' problem, and most of its provisions apply only, or principally, to the largest, most complex, and internationally active banks," said Bernanke.
He said the Fed has always been mindful of that fact and has tried to be clear in communicating with community bankers how certain rules may — or in some cases — may not apply to them.
For example, the Fed now states which banks will be affected at the start of every supervisory guidance. It also states specifically if and how the new guidance will apply to smaller institutions.
Most recently, the central bank included a summary addenda to two of the proposals it released in implementing Basel III to offer a guide to community bankers and let them easily assess the difference from the current set of capital requirements.
Even so, Bernanke acknowledged that there is room for improvement.
"We have realized, though, that we have not always communicated our specific expectations in this regard as clearly as we could have," sad Bernanke. "The last thing we want is for community bankers to have read through long and complex new supervisory policies that were never intended to impact their business."
Bernanke said he is hopeful that the new publication will help to promote better communication between the Fed and community bankers, especially when it comes to supervisory matters.
"We want to hear from readers that may have varied perspectives on the subject matter," said Bernanke. "This publication will be successful if it provides useful insights and promotes greater dialogue, rather than just being a bunch of words on paper that get lost in the shuffle."
Bernanke also said he remains optimistic about the future of community banking, even if he's isn't sure exactly what it will look years ahead.
"I see a very real need for continuation of the traditional community banking model," said Bernanke. "Indeed, I believe there is a real place for the customization and flexibility that community banks can exercise to meet the needs of local communities and small business customers."
Still, Bernanke said it was important to recognize the challenges facing community bankers and the delicate balance the Fed must play in its supervisory role, especially during a weak economy and less lending, which has put pressure on the entire banking industry.
" To protect banks from a possible 'race to the bottom' and new problems down the road, and to safeguard the Deposit Insurance Fund, I believe that we as supervisors must insist on high standards for lending, risk management, and governance," said Bernanke. "At the same time, it is important for banks, for their communities, and for the national economy that banks lend to creditworthy borrowers. Lending to creditworthy borrowers, after all, is how banks earn profits. Getting that balance right is not always easy, but it is of utmost importance."
