Doreen R. Eberley, Director,
Division of Risk Management Supervision,
The Federal Deposit Insurance Corporation
On
Examining Regulatory Burdens – Regulator Perspective
Before the
Subcommittee on Financial Institutions and
Consumer Credit, Committee
On
Housing and Financial Services,
U.S House of Representatives,
HVC-210 Capital Visitor Center
April 23, 2015
Chairman Neugebauer, Ranking Member Clay, and members of the Subcommittee, I
appreciate the opportunity to testify on behalf of the Federal Deposit Insurance
Corporation (FDIC) on regulatory relief for community banks. As the primary federal
regulator for the majority of community banks, the FDIC has a particular interest in
understanding the challenges and opportunities they face.
My testimony will highlight the profile and key performance information for community
banks. I then will discuss the ongoing interagency review to identify outdated,
unnecessary, or unduly burdensome regulations. Next, I will describe how the FDIC
continually strives to implement both regulations and our supervision program in a way
that reflects differences in risk profile among industry participants, while achieving our
supervisory goals of a safe and sound banking system. Finally, I will touch on our
continued work under our Community Bank Initiative to respond to requests we have
received from community banks for technical assistance.
Community Bank Profile
Community banks provide traditional, relationship-based banking services to their
communities, including many small towns and rural areas that would otherwise not have
access to any physical banking services. Community banks (as defined in FDIC
research1) make up 93 percent of all banks in the U.S. – a higher percentage than at
any time going back to at least 1984. While community banks hold just 13 percent of all
banking assets, they account for about 45 percent of all of the small loans to businesses
and farms made by insured institutions. Although 448 community banks failed during
the recent financial crisis, thousands of community banks -- the vast majority -- did not.
Institutions that stuck to their core expertise weathered the crisis. The highest rates of
failure were observed among non-community banks and among community banks that
departed from the traditional model and tried to grow rapidly with risky assets often
funded by volatile non-core and often non-local brokered deposits.
Division of Risk Management Supervision,
The Federal Deposit Insurance Corporation
On
Examining Regulatory Burdens – Regulator Perspective
Before the
Subcommittee on Financial Institutions and
Consumer Credit, Committee
On
Housing and Financial Services,
U.S House of Representatives,
HVC-210 Capital Visitor Center
April 23, 2015
Chairman Neugebauer, Ranking Member Clay, and members of the Subcommittee, I
appreciate the opportunity to testify on behalf of the Federal Deposit Insurance
Corporation (FDIC) on regulatory relief for community banks. As the primary federal
regulator for the majority of community banks, the FDIC has a particular interest in
understanding the challenges and opportunities they face.
My testimony will highlight the profile and key performance information for community
banks. I then will discuss the ongoing interagency review to identify outdated,
unnecessary, or unduly burdensome regulations. Next, I will describe how the FDIC
continually strives to implement both regulations and our supervision program in a way
that reflects differences in risk profile among industry participants, while achieving our
supervisory goals of a safe and sound banking system. Finally, I will touch on our
continued work under our Community Bank Initiative to respond to requests we have
received from community banks for technical assistance.
Community Bank Profile
Community banks provide traditional, relationship-based banking services to their
communities, including many small towns and rural areas that would otherwise not have
access to any physical banking services. Community banks (as defined in FDIC
research1) make up 93 percent of all banks in the U.S. – a higher percentage than at
any time going back to at least 1984. While community banks hold just 13 percent of all
banking assets, they account for about 45 percent of all of the small loans to businesses
and farms made by insured institutions. Although 448 community banks failed during
the recent financial crisis, thousands of community banks -- the vast majority -- did not.
Institutions that stuck to their core expertise weathered the crisis. The highest rates of
failure were observed among non-community banks and among community banks that
departed from the traditional model and tried to grow rapidly with risky assets often
funded by volatile non-core and often non-local brokered deposits.
According to the latest available data, as of December 31, 2014, the overall financial
condition of both community banks and the industry as a whole has continued to
improve. Community banks earned $4.8 billion during the fourth quarter, an increase of
28 percent from a year ago. Higher net interest income, increased noninterest income,
and lower provision expenses were the primary drivers of stronger earnings at
community banks. Net interest income for community banks grew 6.4 percent over the
year-ago quarter, outpacing the industry growth of 1.0 percent. Meanwhile, community
bank loan balances rose by 8.6 percent over the past year compared to 5.3 percent for
the industry. Community banks reported growth in all major loan categories, including
residential mortgages and loans to small businesses, and asset quality showed
continued improvement with the volume of noncurrent loans 19.1 percent lower at the
end of the fourth quarter from a year earlier.
While the financial performance of community banks has continued to improve since the
crisis, especially as compared to the industry as a whole, the FDIC is keenly aware of
the impact that its regulatory requirements can have on smaller institutions, which
operate with fewer staff and other resources than their larger counterparts. As the
primary federal regulator for the majority of community banks, the FDIC pays particular
attention to the impact its regulations may have on smaller and rural institutions that
serve areas that otherwise would not have access to banking services, and the input
community bankers provide regarding such impact.
EGRPRA Review and Progress to Date
The FDIC and other regulators are actively seeking input from the industry and the
public on ways to reduce regulatory burden. The Economic Growth and Regulatory
Paperwork Reduction Act of 19962 (EGRPRA) requires the Federal Financial
Institutions Examination Council (FFIEC),3 the FDIC, the Federal Reserve Board (FRB),
and the Office of the Comptroller of the Currency (OCC) to review our regulations at
least once every ten years to identify any regulations that are outdated, or otherwise
unnecessary. EGRPRA also requires the agencies to eliminate unnecessary regulations
to the extent such action is appropriate. The second decennial EGRPRA review is in
process with a required report due to Congress in 2016. The FDIC has developed a
comprehensive plan for conducting its EGRPRA review that includes coordination with
the other Federal banking agencies.4
On June 4, 2014, the Federal banking agencies jointly published in the Federal Register
the first of a series of requests for public comment on regulations. The first request for
comment covered applications and reporting, powers and activities, and international
operations. The comment period for this request closed on September 2, 2014, and 40
comments were received and are being reviewed. On February 12, 2015, the agencies
published the second request for public comment, focusing on regulations covering
banking operations, capital, and the Community Reinvestment Act. The comment period
for that set of regulations will close on May 14, 2015.
condition of both community banks and the industry as a whole has continued to
improve. Community banks earned $4.8 billion during the fourth quarter, an increase of
28 percent from a year ago. Higher net interest income, increased noninterest income,
and lower provision expenses were the primary drivers of stronger earnings at
community banks. Net interest income for community banks grew 6.4 percent over the
year-ago quarter, outpacing the industry growth of 1.0 percent. Meanwhile, community
bank loan balances rose by 8.6 percent over the past year compared to 5.3 percent for
the industry. Community banks reported growth in all major loan categories, including
residential mortgages and loans to small businesses, and asset quality showed
continued improvement with the volume of noncurrent loans 19.1 percent lower at the
end of the fourth quarter from a year earlier.
While the financial performance of community banks has continued to improve since the
crisis, especially as compared to the industry as a whole, the FDIC is keenly aware of
the impact that its regulatory requirements can have on smaller institutions, which
operate with fewer staff and other resources than their larger counterparts. As the
primary federal regulator for the majority of community banks, the FDIC pays particular
attention to the impact its regulations may have on smaller and rural institutions that
serve areas that otherwise would not have access to banking services, and the input
community bankers provide regarding such impact.
EGRPRA Review and Progress to Date
The FDIC and other regulators are actively seeking input from the industry and the
public on ways to reduce regulatory burden. The Economic Growth and Regulatory
Paperwork Reduction Act of 19962 (EGRPRA) requires the Federal Financial
Institutions Examination Council (FFIEC),3 the FDIC, the Federal Reserve Board (FRB),
and the Office of the Comptroller of the Currency (OCC) to review our regulations at
least once every ten years to identify any regulations that are outdated, or otherwise
unnecessary. EGRPRA also requires the agencies to eliminate unnecessary regulations
to the extent such action is appropriate. The second decennial EGRPRA review is in
process with a required report due to Congress in 2016. The FDIC has developed a
comprehensive plan for conducting its EGRPRA review that includes coordination with
the other Federal banking agencies.4
On June 4, 2014, the Federal banking agencies jointly published in the Federal Register
the first of a series of requests for public comment on regulations. The first request for
comment covered applications and reporting, powers and activities, and international
operations. The comment period for this request closed on September 2, 2014, and 40
comments were received and are being reviewed. On February 12, 2015, the agencies
published the second request for public comment, focusing on regulations covering
banking operations, capital, and the Community Reinvestment Act. The comment period
for that set of regulations will close on May 14, 2015.