Bernanke Says ‘Frustratingly Slow’ Growth Hurts Small Banks
Federal Reserve Chairman Ben S. Bernanke said community banks face big challenges including slow economic growth and compliance with stiffer regulation.
“Community bankers today confront a frustratingly slow recovery, stiff competition from larger banks and other financial institutions, and the responsibility of complying with new and existing regulations,” Bernanke said today in a speech at the Federal Reserve Bank of St. Louis. The central bank chief didn’t comment on monetary policy.
Smaller U.S. banks have said regulatory changes such as Basel III capital requirements and the Dodd-Frank Act financial overhaul put them at a disadvantage because they lack the resources to meet the tougher rules. That hasn’t held back their profits or the shares, which are beating larger lenders and the broader stock market this year.
The Standard & Poor’s SmallCap Banks Index of 48 firms with market values less than $2.5 billion has rallied 27 percent through yesterday, compared with a 22 percent gain for S&P’s gauge of the largest American financial firms and the 19 percent rise by the S&P 500 (SPX) Index. Almost all of the banks in the SmallCap index are up this year, while Glacier Bancorp Inc. (GBCI) of Kalispell, Montana, and six others climbed at least 50 percent.
The S&P 500 declined 0.3 percent to 1,689.67 at 3:50 p.m. in New York after Bernanke’s remarks, while the yield on the benchmark 10-year Treasury note slumped three basis points to 2.62 percent, near a seven-week low.
U.S. banks reported record net income of $42.2 billion for the second quarter on profits from trading securities, the Federal Deposit Insurance Corp. said Aug. 29.
Banks’ earnings for the three months ending June 30 marked a second consecutive record quarter, the FDIC said in its Quarterly Banking Profile. After the second-most profitable year on record in 2012, the boom continued in the first half of this year as some of the largest banks scored trading success outpacing analyst expectations.
Bernanke testified to Congress in July that the central bank has been responsive to the concerns of community banks. The Fed tries to balance its support for small banks in rural areas with ensuring the institutions are sufficiently capitalized to survive “difficult periods,” Bernanke said to the House Financial Services Committee in semi-annual testimony.
Lawmakers including Senator Tim Johnson, a South Dakota Democrat and chairman of the Senate Banking Committee, said this year regulators should go easy on community banks and insurers as the agencies finish capital rules for financial institutions.
Small banks may find parts of the so-called Basel III rules difficult to implement, Johnson and Senator Mike Crapo, the committee’s senior Republican member from Idaho, said in a February letter to leaders of federal agencies including the central bank.
The Fed is working to understand the concerns of small banks and to craft “regulations that are appropriately scaled to banks’ size and complexity,” Bernanke said. The central bank created the Community Depository Institutions Advisory Council made up of representatives of small banks, thrifts and credit unions from each of the 12 regional Fed banks, Bernanke said. Members meet with the Fed board twice a year.
Bernanke spoke at the St. Louis Fed’s conference on “Community Banking in the 21st Century,” a research and policy conference for bankers, regulators and academics.
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