While Westchester and Fairfield are not far from Wall Street and the international banking behemoths that help the world”™s economy grow, the counties are home to community bank offices, a category that recently has been a focus for some federal regulators.
Michelle W. Bowman, a member of the Board of Governors of the Federal Reserve System, discussed community banks during a speech she delivered to the 2020 Economic Forecast Breakfast of the Home Builders Association of Greater Kansas City in Kansas City, Missouri, on Jan. 16. She emphasized their importance as local lenders.
Likewise, when the Federal Reserve Bank of Chicago held its 13th annual Community Bankers Symposium in Chicago in November 2018, Jelena McWilliams, chairman of the Federal Deposit Insurance Corp. (FDIC), had made it plain that the FDIC wanted to see community banks prosper.
McWilliams was sworn in as chairman on June 5, 2018, for a five-year term. She had been chief legal officer with Fifth Third Bank of Cincinnati and previously worked in the U.S. Senate as chief counsel and deputy staff director with the Senate Committee on Banking, Housing and Urban Affairs.
The FDIC”™s State Profile for the third quarter of 2019 had the Poughkeepsie-Newburgh-Middletown market sixth on its list of largest deposit markets in New York. The FDIC said there were 29 institutions in that market with deposits totaling $15.378 billion.
The FDIC ranked the Bridgeport-Stamford-Norwalk market at the top of its banking profile in the State Profile for Connecticut. It showed 30 institutions with a total of $48.906 billion in deposits.
“I have had the opportunity to drive across many areas of this country where one can drive for hours without encountering a town,” McWilliams told the Chicago gathering. “It is a local bank in these small towns across America that finances the construction of town parks; loans money to the third-generation farmer to once again plant this year”™s crops; and provides the town”™s newest family with the ability to start a small business that one day may be run by their grandkids.”
Bowman expressed concern that as regulatory burdens have risen, many community banks have significantly scaled back their lending or exited the mortgage market altogether.
“These developments concern me for several reasons. Home mortgage lending has traditionally been a significant business for smaller banks, and the decline in this business threatens a part of the banking industry that plays a crucial role in communities. Bankers who are present and active in their communities know and understand their customers and the local market better than lenders outside the area. Because of their local knowledge and customer relationships, they are often more willing to help troubled borrowers work their way through difficult times,” Bowman said.
Bowman was a former state banking commissioner in Kansas and was a vice president of her family”™s bank in Kansas, the Farmers & Drovers Bank. In September, she was confirmed by the U.S. Senate to a full 14-year term as the community bank representative on the Federal Reserve Board after having been nominated by President Donald Trump.
“Low interest rates will continue to be a key factor supporting growth in housing activity. As reported in the latest Summary of Economic Projections, released in December, most FOMC (Federal Open Market Committee) participants see the current target range for the federal funds rate as likely to remain appropriate this year as long as incoming information remains broadly consistent with the economic outlook,” she said.
U.S. homebuilding activity by the private sector has been on a solid foundation, according to statistics released Jan. 17 by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. An estimated 1,289,800 housing units were started in 2019, representing a 3.2% increase over the number of starts in 2018. There had been 1,368,800 housing units authorized by building permits during 2019, a 3.9% increase from the year before.
“My colleagues and I at the Federal Reserve pay close attention to developments in the housing sector, in part, because it has historically been such an important driver of economic growth,” Bowman said.
The FDIC”™s McWilliams said that as the primary federal government agency supervising the majority of community banks, her agency has a unique perspective on the challenges those banks face.
“Community banks provide personal, relationship-based services in communities across the country. They tend to understand the unique characteristics of the local economy, businesses and customers, and play a vital role in meeting the credit needs of local consumers, governments and small businesses,” she said.
McWilliams noted that as of mid-2018, banks with assets of less than $10 billion were responsible for about 50% of small-sized loans made to businesses. She said that in 627 counties in the U.S., the only banking offices are ones operated by community banks.
“These banks fill gaps and are essential to providing banking services to local communities that may not be served by larger banks,” McWilliams said.
She pointed out that the overwhelming majority of U.S. banks, 5,408 of the 5,542 banks insured by the FDIC, held less than $10 billion in assets as of mid-2018.
At the FDIC”™s Commercial Real Estate Conference in New York City on Nov. 6, 2019, McWilliams reported that as of 2019”™s second quarter, banks held about $2.4 trillion in commercial real estate loans.
“None of us can accurately predict when, where or how the next downturn in the economy, or in the commercial real estate sector, will occur. However, we do know that commercial real estate holds challenges for the banking industry, including potential boom-and-bust cycles and asset/liability mismatches,” McWilliams said. “Today, retail and office space are currently undergoing significant evolutions as an increasing share of retail shopping moves online. This evolution provides opportunity, but it also brings uncertainty to the lending environment.”
