🪙WARSH ERA BEGINS! Fed Chief Warns Banks on Crypto • Federal Reserve News • Interest Rates Today

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[00:00:00]the years. This fundamental lessons from community banking, relationship focus, community stewardship, and practical risk management remain central to how I approach supervision and regulation.

[00:00:14]They also fundamentally inform how I think about tailoring.

[00:00:20]639 community banks call the 10th District home.

[00:00:26]Not only does it have the second largest geographic area under Fed supervision, but more than half of the district's banks are headquartered in rural areas.

[00:00:36]Its area is significant, and it's a microcosm for understanding the future of community banking across America.

[00:00:46]In this district, banks serve distant rural communities alongside concentrated urban centers.

[00:00:53]They navigate commodity price volatility that can transform local economies in a single growing season.

[00:01:01]They compete against financial institutions that are well-funded, but have no physical branches.

[00:01:08]Yet these community banks are remarkably resilient. They have developed specialized lending expertise that larger institutions simply cannot replicate.

[00:01:19]They create deep customer relationships that transcend transactional banking.

[00:01:25]Many have partnered strategically with fintechs rather than viewing them solely as competitors, and have continued to profitably serve communities providing essential financial services.

[00:01:38]The business model works when it is executed with skill and commitment.

[00:01:46]Innovations created in this district often become standard practice nationwide.

[00:01:52]Many agricultural banks created mobile banking solutions to serve their customers, many of whom are farmers that are spread across large geographic areas making accessing brick-and-mortar locations significantly challenging while tending to their day-to-day operations.

[00:02:11]Similarly, an Oklahoma bank created a mobile banking application focused on the well-being of our military service members.

[00:02:19]This bank has demonstrated commitment toward modernizing the banking experience for members of the US military offering checking, savings, and mortgage products.

[00:02:31]That's why the theme of this conference the future of banking is particularly fitting.

[00:02:38]In so many ways, 10th District banks are already building that future.

[00:02:45]Our renewed regulatory and supervisory approach, implementing tailored requirements and expectations focused on material financial risks, is designed to support that future.

[00:03:00]Since the global financial crisis, the regulatory and supervisory approaches designed for large institutions have often been pushed down to community banks.

[00:03:10]That one-size-fits-all approach creates an unlevel playing field for community banks in an increasingly competitive environment with evolving customer needs.

[00:03:22]While there are many examples, I will focus on two that will clearly explain the one-size-fits-all problem.

[00:03:29]First is the current expected credit loss accounting framework or CECL.

[00:03:34]It requires sophisticated modeling that is more appropriate for large, complex institutions.

[00:03:42]The resources, specialized staff, extensive data sets, and auditing associated with complex lifetime loss forecasting creates an ongoing cost and compliance burden that provides no meaningful benefit for community banks that rely on a straightforward lending practice and close relationships with their borrowers.

[00:04:05]Similarly, regulation O, while important for preventing conflicts of interest, imposes disproportionate burdens on community banks where local board members often have the deepest understanding of local credit conditions.

[00:04:21]In some rural communities, local business leaders are not willing to serve on a community bank board because they would lose the ability to obtain credit cards or lines of credit from the bank or be forced to bank outside of their local rural community.

[00:04:37]The supervisory approach to Reg O compliance appears to have evolved in a manner that can treat minor technical violations and inadvertent errors with a degree of severity more comparable to substantive violations. In some cases, examiners have issued matters requiring attention and other supervisory criticisms, including enforcement actions, for menial, unintentional Reg O issues that do not trigger the rules' concern about preferential treatment.

[00:05:09]As a result, a significant number of banks have determined that the compliance risk associated with extending credit to their officers and directors exceeds any business justification for doing so. These banks have adopted blanket policies prohibiting all extensions of credit to insiders, including routine consumer products like credit cards, overdraft facilities, and residential mortgage loans.

[00:05:36]Consequently, senior officers