Washington Must Ensure Community Bank Representation at the Banking Regulators

By: Rebeca Romero Rainey

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As President Donald Trump considers nominees to lead the federal banking agencies under his new administration, policymakers have a unique chance to secure representation for community banks—the local lenders driving our economies.?

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With several slots at the Federal Deposit Insurance Corp., Federal Reserve, and Office of the Comptroller of the Currency opening for a new slate of nominees, ensuring community banking perspectives are represented will ensure the agencies consider and understand the impact of their policies on all communities.?

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Community banks are important to the U.S. economy at the local and national level, ensuring banking services are available in small and rural communities. Accounting for roughly 60% of U.S. small-business loans under $1 million and 80% of banking industry agriculture loans, these local institutions are the lifeblood for a vital sector of the economy.?

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Despite their critical role in the nation's economy and their significant stakes in the economic, banking, and payment issues addressed by federal regulators, community banks have consistently faced underrepresentation within the agencies. Even after Congress passed a law in January 2015 mandating that at least one member of the Federal Reserve Board have experience as a community banker or community bank supervisor, that position sat vacant for more than three years.?

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This lack of representation amounts to a structural deficiency within the federal government, allowing for regulatory agencies that fail to understand the business model of locally based lenders. With the FDIC estimating that 16.3 million people in roughly one in three U.S. counties would have limited or no physical access to mainstream banking services without the presence of community banks, this gap threatens to put many American communities — particularly those in rural areas — in jeopardy of losing access to financial services.?

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As community banks know all too well, this imbalance at the agencies has had significant negative consequences on the banking industry. Over the years, regulatory requirements calibrated for the largest banks have increasingly applied to the smallest institutions, leading to more examiners, more prescriptive rules, and more pages of regulations for local lenders to track. These regulatory burdens diminish community banks’ ability to support the financial needs of local economies while serving as a barrier to entry to the formation of new banks, which has contributed to increased consolidation and concentration in the banking sector.?

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Fortunately for the incoming administration and the economy, current Fed Governor Michelle Bowman is a rare regulatory official with community banking experience. Bowman served as a fifth-generation community banker and as Kansas state bank commissioner before filling the long-vacant community banking slot at the Fed. Bowman has championed regulations that prioritize safety and soundness, pragmatic oversight that ensures proposed reforms clearly target stresses in the financial system, and rules that meticulously follow administrative procedures to maximize transparency and avoid confusion that can hinder access to credit.?

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Perhaps most important for locally based community banks — which pose little systemic risk to the financial sector — is Bowman’s emphasis on tiered regulation. Bowman has noted that regulations tailored to the size, business model, risk profile, and complexity of regulated institutions ensure limited supervisory resources are allocated effectively and are dedicated to the most critical risks over time, avoiding unnecessary costs on the banking system.?

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Local communities are the beating heart of our nation’s economy, and community banks are their most critical lifeline. As policymakers in Washington consider the next crop of officials to serve the important role of overseeing the U.S. banking system, they should ensure these communities — and the lenders that meet their financial needs — are well represented.?

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Rebeca Romero Rainey is president and CEO of the Independent Community Bankers of America.?