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Community Banking Initiatives

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Community banks provide traditional, relationship-based banking services in their local communities, and as the primary federal supervisor for the majority of community banks, the FDIC has a particular responsibility for the safety and soundness of this segment of the banking system.

As defined for FDIC research purposes, community banks made up 92 percent of all FDIC-insured institutions at mid-year 2018. While these banks hold just 13 percent of banking industry assets, community banks are of critical importance to the U.S. economy and local communities across the nation. They hold 42 percent of the industry’s small loans to farmers and businesses, making them the lifeline to entrepreneurs and small enterprises of all types, and they hold the majority of bank deposits in U.S. rural counties and micropolitan counties with populations up to 50,000. In fact, as of June 2018, community banks held more than 75 percent of deposits in more than 1,200 U.S. counties. In more than 600 of these counties, the only banking offices available to consumers were those operated by community banks.

In 2012, the FDIC launched a Community Banking Initiative to better understand and support these institutions. As part of the initiative, the FDIC publishes research on issues of importance to community banks, and provides them with resources to manage risk, enhance the expertise of their staff, and adapt to changes in the regulatory environment.

Community Banking Research

The FDIC pursues an ambitious, ongoing agenda of research and outreach focused on community banking issues. Since the 2012 publication of the FDIC Community Banking Study, FDIC researchers have published more than a dozen additional studies on topics ranging from small business financing to the factors that have driven industry consolidation over the past 30 years.

The FDIC Quarterly Banking Profile (QBP) includes a section focused specifically on community bank performance, providing a detailed statistical picture of the community banking sector that can be accessed by analysts, other regulators, and bankers themselves. The most recent report shows that net income at community banks continued to grow at a healthy annual rate in the first half of 2018. 

The long-term trend of consolidation has done little to diminish the role of community banks in the banking industry. More than three-quarters of the community banks that merged in 2017 and early 2018 were acquired by other community banks. On a merger-adjusted basis, loan growth at community banks exceeded growth at noncommunity banks in every year between 2012 and 2017. (See Chart 1.) From June 2017 to June 2018, currently operating noncommunity banks closed far more offices than they acquired. In contrast, currently operating community banks acquired offices and opened still more offices, on net, during the year. (See Table 1)

Community Bank Advisory Committee

The FDIC’s Advisory Committee on Community Banking is an ongoing forum for discussing current issues and receiving valuable feedback from the industry. The committee, which met twice during 2018, is composed of as many as 18 community bank CEOs from around the country. It is a valuable resource for information on a wide range of topics, including examination policies and procedures, capital and other supervisory issues, credit and lending practices, deposit insurance assessments and coverage, and regulatory compliance issues. 

At the July 2018 meeting, DIR discussed the current financial performance of community banks, and how selected risk indicators compare to those seen before the financial crisis. As compared to the pre-crisis years, community banks have higher capital ratios than noncommunity banks, and far fewer of community banks have extremely high concentrations in construction lending. The presenters also noted, however, that community banks are holding generally more loans, fewer liquid assets, and face potential pressures on deposit costs as interest rates increase.

Chart 1: Community Bank Loan Growth has Exceeded Growth at Noncommunity Banks for Six Consecutive Years

Merger Adjusted Annual Growth in Total Loans and Leases 2006-2017

Chart for community bank loan growth showing percentages for community and noncommunity banks

Source: FDIC. All calculations are merger adjusted.

Table 1. Community Banks Added Offices While Noncommunity Banks Closed Offices From June 2017 to June 2018
  Offices of the June 2018 Group of Institutions in June 2017 Offices of Banks Acquired Number of Offices in June 2017, Merger-adjusted New Offices Opened Offices Closed Net Offices Purchased or Sold Number of Offices in June 2018
Community Banks 29,832 619 30,451 585 500 15 30,551
Noncommunity Banks 57,886 1,481 59,367 404 2,254 -15 57,502
Total 87,718 2,100 89,818 989 2,754 0 88,053

Source: FDIC.

Committee members indicated that deposit pricing pressures had been relatively modest, but that further interest rate increases could begin to pressure their deposit costs.

De Novo Banks

In 2018, the FDIC pursued multiple initiatives to fulfill its commitment to working with, and providing support to, any group with interest in starting a bank. In general, these initiatives focused on reviewing and, as appropriate, updating the processes, procedures, and management systems by which the FDIC receives, reviews, and acts on applications.

Most significantly, in December 2018, the FDIC announced new measures to promote a more transparent, streamlined, and accountable process for all de novo applications submitted to the agency. Specifically, the FDIC issued a Request for Information soliciting comments on the deposit insurance application process, including the transparency and efficiency of the process, and any unnecessary burdens that impede the process.

The agency also established a process to receive and review draft deposit insurance proposals. This process will help organizers of new financial institutions by providing an early opportunity for both the FDIC and organizers to identify potential challenges with respect to the statutory criteria, areas that may require further detail or support, and potential issues or concerns. It will also promote a more transparent and efficient deposit insurance application process. The FDIC also established an Applications Mailbox as an additional means by which bankers and other applicants may pose questions regarding a specific application or the application process.

Other measures to support de novo formation, included:

Technical Assistance Program

As part of the Community Banking Initiative, the FDIC continued to provide a robust technical assistance program for bank directors, officers, and employees. The technical assistance program includes Directors’ College events held across the country, industry teleconferences and webinars, and a video program.

In 2018, the FDIC hosted Directors’ College events in five of its six regions. These events were typically conducted jointly with state trade associations and addressed issues such as corporate governance, regulatory capital, community banking, concentrations management, consumer protection, BSA, and interest-rate risk, among other topics.

The FDIC also offers a series of banker events in order to maintain open lines of communication and to keep bank management and staff up-to-date on important banking regulatory and emerging issues of interest to community bankers. In 2018, the FDIC offered 11 teleconferences or webinars focused on the following topics:

In October 2018, the FDIC hosted a teleconference to provide information about EGRRCPA implementation, and to answer questions. The call was part of the FDIC’s consumer compliance teleconference and webinar series, which allows the FDIC to communicate important information to supervised institutions on a variety of topics and to respond to industry questions. 

In November 2018, the FDIC hosted another teleconference to discuss results of the 2017 National Survey of Unbanked and Underbanked Households. During this call, participants also discussed economic inclusion resources pertinent to community banks, including the Money Smart for Adults financial education program, and CRA consideration for activities that benefit underserved communities.

Economic Growth and Regulatory Paperwork Reduction Act

The Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) directs the federal banking agencies and the FFIEC to conduct a joint review of regulations every 10 years to determine whether any of those regulations are outdated or unnecessary.

In March 2017, the FFIEC submitted a report to Congress that described actions the agencies had already taken to address comments received during the EGRPRA process, as well as actions the agencies planned to take in the future. During 2018, the FDIC along with the other FFIEC member agencies, continued to work together to reduce burden in the following areas raised during the EGRPRA review process.