Yesterday, the FDIC’s Advisory Committee on Community Banking held an open meeting to provide advice and recommendations about policy issues that have a particular impact on small community banks. FDIC Chairman Sheila Bair made opening and closing remarks. The meeting consisted of seven panels, moderated by various FDIC personnel:
Panel 1: Economic Outlook and Condition of the Industry
- Richard A. Brown, Associate Director, Division of Insurance and Research
- James C. Watkins, Deputy Director, Division of Supervision and Consumer Protection
Panel 2: Capital Adequacy and Regulatory Requirements
- Steven D. Fritts, Associate Director, Division of Supervision and Consumer Protection
- Nancy Hunt, Associate Director, Division of Supervision and Consumer Protection
- Robert Storch, Chief Accountant, Division of Supervision and Consumer Protection
Panel 3: The Evolving Deposit Insurance Assessment System
- Diane Ellis, Deputy Director, Division of Insurance and Research
- Marc Steckel, Associate Director, Division of Insurance and Research
Panel 4: Deposit Insurance Coverage and Advertising Rules
- Kathleen G. Nagle, Associate Director, Division of Supervision and Consumer Protection
- Joe DiNuzzo, Supervisory Counsel, Legal Division
Panel 5: Mitigating Systemic Risk and the FDIC’s New Resolution Authority
- Arthur J. Murton, Acting Director, Office of Complex Financial Institutions
Panel 6: Consumer Protection and Compliance Issues
- Ellen Lazar, Senior Advisor to the Chairman
Panel 7: Roundtable Discussion on the Dodd-Frank Wall Street Reform and Consumer Protection Act and Other Issues
- Paul M. Nash, Deputy to the Chairman for External Affairs
- Roberta K. McInerney, Deputy General Counsel, Legal Division
In the first panel, Richard Brown and James Watkins opened with a general overview of highlights on the economy and bank performance before taking questions from the Committee. Touching on issues ranging from mortgage foreclosures, “estimat[ing] about 1.2 million foreclosures in the first half of this year,” to possible options to stimulate the economy, stating with reservations that “the only option … is the quantitative easing by the Fed,” Brown and Watkins focused on what they viewed as the major problem facing community banks (banks with assets of $1 billion or less), whose “asset quality remains difficult and weak.”
The speakers also went on to address questions about loan interest rates, provision coverage ratios, and borrower insecurities. With regards to small business lending, Brown noted that “the growth … has primarily been a result of clients because we’ve had a significant number of bank failures in our state so these are clients that are moving from a failed bank or have not developed a relationship as a result of a new bank taking over.”
Returning again to the topic of job growth and uncertainty, the panel focused on the problem that “we’ve had so much legislation passed that we don’t know what all it says yet…. And until the businessman knows exactly the impact on him, he can’t make a decision.”
In the second panel, Steven Fritts, Nancy Hunt and Robert Storch addressed capital adequacy and regulatory requirements. Fritts started off with a presentation of various negatives, acknowledging that “capital raises have been especially difficult for community banks because they don’t have the same access to the capital markets that larger public companies do.” He followed this with a positive acknowledgement that “the best way to build capital is earnings … [and] we have seen some earnings, at least for the last couple of quarters … although not as profitable as you or we might like.”
Moving on to the Small Business Lending Fund, Fritts sounded hopeful that Treasury would develop a useful program, having discussed with them that “based on their experience with the TARP that the process needs to be more transparent, clearer, faster decisions.” Fritts, Hunt, and Storch responded to questions on the Capital Purchase Program (CPP), the Collins Amendment, and forecasting balance sheet strength.
In the third panel, Diane Ellis and Marc Steckel addressed the deposit insurance assessment system and ongoing changes. After acknowledging possible regulatory gaps, the panel focused on the difference between regulation and enforcement of regulation, and the important distinction between having a mechanism in place to enforce regulations on banks and actually using the mechanism. Ellis and Steckel also talked about the importance of simplification, and the mandates on that point included in the Dodd-Frank Act.
In the fourth panel, Kathleen Nagle and Joe DiNuzzo spoke about upcoming changes in deposit insurance coverage. DiNuzzo began by explaining the Dodd-Frank provisions addressing insurance coverage, including the permanent $250,000 coverage amount. Nagle followed with an overview of FDIC offerings to assist in training employees and in providing accurate information to customers.
In the afternoon panels, Arthur Murton spoke about ways to mitigate systemic risk and the FDIC’s new orderly liquidation authority. Following him was Ellen Lazar, who addressed consumer protection and compliance issues. Ending the day were Paul Nash and Roberts McInerney, who participated in an open discussion about the Dodd-Frank Act, among other issues in community banking.