Yellen Says Fed Seeking Smarter Oversight of Community Banks

Chair Janet Yellen said the Federal Reserve will tailor its supervision of community banks to reduce their regulatory burden, and that small lenders shouldn’t face the same sort of oversight as the biggest financial firms.

“We are taking a fresh look at how we supervise community banks and possible ways that supervision can be smarter, more nimble, and more effective,” Yellen said today in a speech in Washington to the Independent Community Bankers of America. “A one-size-fits-all approach to supervision is often not appropriate.”

The central bank is “taking a disciplined approach” to regulation that weighs the costs and benefits of regulatory implementation, “asking whether it makes sense for a specific policy to apply to community banks,” Yellen said. She did not discuss monetary policy.

Community bankers and some lawmakers are calling for a representative of small banks to be nominated to the Fed’s Board of Governors, saying such lenders suffer when subject to some of same regulatory burdens as big banks.

Many executives leading almost 7,000 U.S. banks with assets below $10 billion are struggling to adapt to the Fed’s overhaul of the financial supervision under the Dodd-Frank Act.

Open Seat

The White House is considering two community bankers to fill an open Fed seat, two people with knowledge of the process said earlier this month. The bankers are Rebeca Romero Rainey, chief executive officer of Centinel Bank of Taos, New Mexico; and Ann Marie Mehlum, the former CEO of Summit Bank in Eugene, Oregon, according to the people, who asked not to be identified because nominations haven’t been announced.

Senators Mark Warner, a Virginia Democrat, Pat Toomey, a Pennsylvania Republican, and Heidi Heitkamp, a North Dakota Democrat, have urged the White House to nominate a community banker to the Fed board.

“Community banks share the interest we all have in reducing the systemic risk posed by firms that are large, complex, and interconnected, and also in reducing any potential competitive advantages that such firms may enjoy as a result of too-big-to-fail,” Yellen said.

Dodd-Frank “addresses the too-big-to-fail issue through steps intended to limit both the likelihood that systemically important firms would fail and the potential damage,” she said. Still, “work is not finished” on ending too-big-to-fail.

The policy-setting Federal Open Market Committee yesterday said it will keep trimming asset purchases as the economy shakes off the winter doldrums, putting the Fed on a course to end the stimulus program by the end of 2014. It cut monthly bond buying to $45 billion, its fourth straight $10 billion cut, and said further reductions in “measured steps” are likely.

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