A Studied Look at Community Banking

Last week the Federal Reserve Bank System (FRB) and the Conference of State Bank Supervisors (CSBS) co-hosted the first “Community Banking in the 21st Century” conference at the St. Louis Federal Reserve Bank. In attendance were about 50 community bankers, about 50 bank regulators — including many state department commissioners — and about 50 academics. It was an honor to have been invited to witness this inaugural effort. FRB Chairman Ben Bernanke kicked off the conference with remarks describing efforts of the FRB to communicate effectively with community banks, and recognizing the unique contributions of community banks in the financial marketplace.

During the course of the two-day event, 12 academic research papers were presented by their authors. One was presented by Dean Mohammed Khayum, Charles Kelley and Curtis Price from the Romain College of Business at the University of Southern Indiana (USI) in Evansville. Their paper, “Equipment Lease Financing: The Role of Community Banks,” analyzed the providing of commercial lease products by community banks, and researched whether community banks should be involved in commercial leasing. The well-presented and structured paper indicated that only about 15 percent of community banks provide a leasing option. Many community bankers fear that it is too complex of a product for them; however, the research indicated that it is no more complex than a commercial loan, and that it could be a good product for those community banks that already provide commercial loans to their business customers. The Indiana delegation was proud that USI was selected to make a presentation at this conference.

A wide range of papers were presented that analyzed a variety of issues related to community banking. Last summer, town hall meetings were hosted around the country by state bank commissioners and FRB staff. Two were held in Indiana, one in Evansville and one in Indianapolis. Attendees were community bankers who discussed the opportunities and challenges they see for the industry. In all, more than 50 of these meetings were held in 28 states. Afterward Charles Vice, chairman of the CSBS and commissioner of the Kentucky Department of Financial Institutions, distributed a detailed publication of the notes from each of these meetings. The material is worthy reading and possibly the most comprehensive study of community banking, as told by community bankers, I have read in my 40-plus years in the business.

The conclusion of the conference was that there is a place for community banking in the future and a general feeling of optimism. It also was recognized that many obstacles remain. The overriding consensus was that community banks are different and therefore need a different regulatory system.

Many thanks for the opportunity to attend, and congratulations to Julie Stackhouse and her team at the St. Louis FRB for a job well done!

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