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In its first-year progress report on community banks, the FDIC details how it is responding to specific complaints outlined by institutions at roundtables earlier this year.
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A yearlong FDIC research project charts the impact of consolidation and other pressures on small banks, but suggests continued viability for the sector.
December 18
WASHINGTON — Bankers are applauding the opening salvo of a Federal Deposit Insurance Corp. project to focus on community bank troubles, but are already looking ahead to the next phases.
As part of a plan unveiled last year to address small-bank challenges — and some potential solutions — the agency on Tuesday released a study of community banks since the mid-eighties and basic steps taken so far to lighten the load, including a
Predictably, the progress has not caught up to bankers' wish list when the project first launched, when some expressed hope for clearer demarcations between the regulatory obligations of small and big banks. But executives and industry representatives Tuesday still hailed the FDIC's first step, welcoming the changes to the pre-exam process and saying the agency has built a good foundation for future steps.
"Of course we would all like to have all issues resolved more quickly than they ever can be," said Dorothy Savarese, the president and chief executive officer of the $2.3 billion-asset Cape Cod Five Cents Savings Bank in Harwich Port, Mass.
"But what [FDIC Chairman Martin Gruenberg] and his staff … did do was really lit into a lot of the most frequent complaints by institutions — the things that people were saying were really throbbing — in terms of mitigating some of those concerns."
The report laid out initial results of an agency review of supervision and rulemaking policies to seek ways to improve the process for community banks, as well as offer new data on
"It was a study that needed to be done," said Camden Fine, the chief executive of the Independent Community Bankers of America.
Based on specific concerns outlined by bankers at a series of roundtables Gruenberg held this year, the agency touted new automated tools being developed to reduce unnecessary and irrelevant pre-exam document requests, steps to improve the delivery and substance of post-exam reports and a series of measures to increase awareness and technical understanding of rules being enforced and those in the pipeline.
The steps to improve the exam experience "are real important connections between the FDIC and the banks they regulate, and that can make a huge difference," said James Chessen, the chief economist of the American Bankers Association.
"Being more conscious of the data requests they're asking for, the commitment that they look at the information before the show up at a bank — all of those things are creating a better process that helps the face-to-face interaction. Hopefully, there will be a broader look to say: Are we just layering on more and more regulations until at some point that last regulation is the straw that breaks the backs of that bank? I'm glad there's a recognition. Now there needs to be a process for how do you address that."
While bankers said the report amounts to a solid beginning, they clearly are hoping for more as the project further evolves.
"The FDIC's improvements to its pre- and post-exam procedures have been helpful to community banks," said Fine. "I believe the FDIC has recognized and is in fact trying hard to reduce the intrusiveness of the exam process. Hopefully, the FDIC will continue to tweak its exam procedures to further reduce examination intrusion. We appreciate the steps they have taken in this regard, and stand ready to assist the FDIC in further improving the process."
Joseph Pierce, president and chief executive of the $480 million-asset Farmers State Bank in LaGrange, Ind., said the "pre-exam tool that they have developed is a huge step" and he was "not sure they could have done much more" in the first year of the program.
"I expect big things next year," he said. "They've clearly demonstrated their commitment to community banking," he said.
Matthew Williams, the chairman and president of the $122 million-asset Gothenburg State Bank & Trust Co., said he was "very optimistic" that the initial progress will form the basis for future discussions about a regulatory system that more directly recognizes an institution's size.
"As a banker, I always wish there was more progress, but realistically I must applaud the FDIC and their leadership for their efforts in this area," said Williams, who is the chairman of the American Bankers Association. "We saw from the beginning that there is a strong commitment on the part of the FDIC to recognize that the community banking model is important to our country and is a viable model for the future.
"What we're going to eventually see is the recognition that banks of different charters, geography and size need to have a regulatory system that is flexible and is not one size fits all. I believe all the regulators see that, understand that and are struggling with: How do you do that? I would suggest that Chairman Gruenberg is on the leading edge of that discussion and I'm very proud of him and the FDIC for their stance on that."
Meanwhile, the research study that accompanied the agency's outline of initial supervisory steps also earned high marks. The study charted the effects of consolidation and other challenges on a community bank sector that has nevertheless remained viable, particularly in non-urban areas where larger banks are less interested in competing.
"The study shows the importance of community banks to the banking system, and to the communities we serve. It solidifies the notion that community banks are the economic engines of their communities and collectively generating economic growth in the nation," said William Loving Jr., the president and chief executive at Pendleton Community Bank Inc. in Franklin, W. Va.
Savarese said more ambitious changes to the regulatory process are likely to be a heavier chore for the FDIC, since many of the more significant reforms that community banks see as necessary would require legislative change or coordination by other agencies. The FDIC is one of several agencies writing rules implementing Basel III, for example, while consumer rules are determined by the Consumer Financial Protection Bureau. Still, she said, she believes the FDIC is considering further tweaks.
"There are some more structural and sizable issues that I think they're working on on a parallel path," she said. "But progress on those can tend to be more intractable or a little bit more difficult, in that they involve coordination with both the legislative side as well as other prudential regulators and rule-writers. … What they tried to do was make progress where they could in areas where they could move quickly and lay out a little bit of a roadmap for next steps in this arena."
