The 2013 Interagency Minority Depository Institution and CDFI Bank Conference
Collaboration and the Supervisory Process
|Doreen R. Eberley
|Director, Division of Risk Management Supervision, FDIC
|Director, Division of Depositor and Consumer Protection, FDIC
|Maryann F. Hunter
|Deputy Director, Division of Banking Supervision and Regulation, Federal Reserve Board of Governors
|Jennifer C. Kelly
|Senior Deputy Comptroller for Midsize and Community Bank Supervision, OCC
|Arthur W. Lindo
|Senior Associate Director, Div. of Banking Supervision and Regulation Federal Reserve Board of Governors
Senior regulators provided updates on examination, rulemaking and guidance issues, and solicited feedback from bankers in the audience. Minority and community development bankers joined the roundtable discussion on a variety of supervisory and regulatory issues, discussing their impact on the challenges and opportunities facing the industry.
Coming out of the recent financial crisis, the financial condition of the industry is improving, although loan demand is still low and banks face challenges from continuing margin squeezes and growing interest rate risk. The slow economic recovery in areas where MDIs are located has affected access to credit and the ability of minority banks to serve their communities. Minority bankers described their difficulties in keeping up with more complex regulations coming out of the crisis, while regulators indicated their concern about banks’ increasing use of consultants to address supervisory and regulatory issues. The regulators expressed their desire to improve communications with bankers on regulatory expectations.
Minority bankers indicated the ability to serve their communities is affected by the accelerating pace of rule changes and new regulations, and they are concerned with the unintended consequences of these rules, including the growing uneven playing field between community and large banks. Minority bankers stated that if the regulators are looking for pristine loans, they cannot provide credit or be a lender of last resort to many of their customers. For many of the customers they would turn down, the only source of credit is outside of the banking system. Attracting capital is another concern; some minority bankers may find it difficult to persuade prospective investors that community banks have a bright future.
Some minority bankers are looking for tools to serve the under banked, recent immigrants and customers with low FICO scores or without scores at all. They are looking to be more competitive with check cashers and payday lenders, and are looking for advice from the regulators on how to do this. Many of the bankers work with cash-intensive economies (mom and pop convenience stores, gas stations, churches, dry cleaners, etc.) raising Bank Secrecy Act questions or concerns, and they are looking for ways to comply with rules that enable them to continue to serve these customers. Another common regulatory concern is with commercial real estate or other concentrations, which may force minority bankers into new areas where their bank may not have experience or expertise. Other banker concerns include regulatory red tape on applications and exam reports that they believe strike a critical tone despite improvements the bank has made.
The regulators indicated that recent studies underscore that the community bank model continues to be resilient for those who follow prudent risk management practices. For example, the Federal Reserve Bank of St. Louis recently published a study, “The Future of Community Banks: Lessons from Banks That Thrived During the Recent Financial Crisis,” which found that community banks with strong commitments to maintaining standards of risk control in all economic environments, and business plans that work for their individual markets, have a viable future in community banking. The FDIC’s 2012 Community Banking Study also found that there is not much evidence to suggest that economies of scale are an important source of competitive disadvantage for most community banks or that they will compel significant additional consolidation in the years ahead. One banker suggested that bankers need to come together to develop a platform to make the community bank business model more secure and appealing to investors.
The regulators asked how they can provide more meaningful technical assistance for minority bankers. Bankers expressed an interest in understanding corrective actions and that regulators engage with bankers more during the examination process to reach appropriate solutions. They also suggested that during the pre-examination planning process, examiners delve into the specifics of a new issue before the examination rather than making general conclusions from offsite data. Bankers would like more “black and white” answers to their questions and prefer not to have to wait for examiners to “go up the chain” to get a clear answer.
Regulators and minority bankers agreed to continue to improve communications. The regulators agreed to communicate their expectations to bankers, and the bankers agreed to communicate to regulators how supervisory and regulatory approaches are affecting their banks. Although the perception is that many of the new rules coming out of the crisis will adversely affect smaller community banks, the feedback community banks have provided to regulators has had an impact on rulemaking. For example, regulators have responded to community banker concerns with the recent mortgage and capital rules. The regulators committed to provide the expertise and resources through technical assistance programs to assist community banks as they experience challenging times and possible changes in their business model. The banks that will thrive will be those which can best help their local communities.