Smaller banks may get lost in Fed shuffle
The Federal Reserve Board of Governors that's taking shape under Janet Yellen has a conspicuous and unusual absence: anyone with a community-banking background.
The lack of a representative is raising anxiety among executives of the almost 7,000 banks in the United States with assets under $10 billion, many of them struggling to understand and influence the Fed's overhaul of the financial system under the Dodd-Frank Act.
“I've been in the banking industry for over 30 years, and in my entire tenure there's always been at least one governor that understood the community-banking industry,” said Camden Fine, the president of the Independent Community Bankers of America. “We're letting our feelings be known to the White House and Congress. We feel strongly that someone should.”
While community banks' share of financial-industry assets is just 14 percent, according to a 2012 Federal Deposit Insurance Corp. report, they provide almost half of small loans to farms and businesses and serve different geographic areas than the largest banks. Their role in supplying credit is critical for small businesses — those with fewer than 50 workers, which employ 48 million Americans.
“It'd be nice to have a community banker, someone who's actually made loans, taken deposits, and can understand what middle America, small-town America is thinking and will bring that voice to the table,” Frank Keating, president and chief executive officer of the American Bankers Association, said in an interview last month on Bloomberg Radio's “The Hays Advantage.”
Community banks are often the only institutions serving rural areas and smaller towns. According to an FDIC report, more than 1,200 of the 3,238 counties in the United States, with 16.3 million residents, “would have limited physical access to mainstream banking services without the presence of community banks.”
Until recently, the Fed had two governors who had experience with retail banks. Elizabeth Duke, who retired from the Fed at the end of August, was a career community banker. Sarah Bloom Raskin, who is awaiting confirmation as deputy Treasury secretary, was Maryland's banking regulator.
The central bank's board has long been composed of a mix of academics, lawyers, financiers and commercial bankers. It is currently in flux as Chairman Ben S. Bernanke is about to be replaced by Yellen, the current vice chairwoman, who was confirmed by the Senate last week.
On Friday, the White House announced that President Obama will nominate Stanley Fischer, the former head of the Bank of Israel, to replace Yellen as vice chair of the Federal Reserve.
Obama tapped two other people for seats on the central bank's Board of Governors:
• Lael Brainard, who recently stepped down as Treasury undersecretary for international affairs, was chosen to fill one of the vacant seats on the seven-member Fed board.
• And Jerome H. Powell, a former Treasury official and investment banker who has served on the Fed board since 2012, will be renominated.
The job of Fed governor has grown more complex in recent years, as officials experiment with unconventional monetary policy and have taken on new responsibilities for monitoring financial stability. The board is in charge of supervising and regulating the nation's bank-holding companies and issuing regulations required under the 2010 Dodd-Frank Act.
The board of governors has a subcommittee on community banking, dedicated to examining how regulations affect smaller financial institutions. The subcommittee currently includes Raskin and Powell, who was an investment banker and also worked in private equity.
The push to maintain community-bank representation on the board of governors comes as the industry struggles to cope with regulations like the Volcker Rule, which bans banks from proprietary trading, and Basel III, a set of international capital standards aimed at making banking systems safer.
The Federal Reserve Act calls for the governors to come from diverse backgrounds, saying the appointments should have “due regard to a fair representation of the financial, agricultural, industrial, and commercial interests, and geographical divisions of the country.”
The Associated Press contributed to this report.