Read Between the Lines August 2016

August 2016

Read Between the Lines

Each month Bank Insights reviews news from regulators and others to give perspective on regulatory challenges.

FDIC Preparing De Novo Guide

The Federal Deposit Insurance Corp. is working on a practical guide that will help would-be bank investors understand the process of starting a bank. The publication, which is due out before the end of the year,  will take organizing groups from the initial concept through the application process and post-approval, the FDIC announced in the summer issue of Supervisory Insights, which also has an article about de novos.  Included in the guide will be information about sound business plans, raising capital, recruiting management and other issues that have been obstacles to new bank organizers. 

Most Bank Assessments to Decline

Community banks should expect to pay less for deposit insurance, now that the Deposit Insurance Fund’s reserve ratio has reached 1.17 percent, the highest level in more than eight years.  “Assessment rates for 93 percent of institutions with less than $10 billion in assets are expected to decline,” FDIC Chairman Martin J. Gruenberg said. “On average, regular quarterly assessments are expected to decline by about one-third for these smaller institutions.” The FDIC is changing the way it determines risk-based assessment rates, though it maintains the change will be revenue neutral.

Federal Reserve Community Banking Conference to Be Interactive

The fourth annual Federal Reserve/Conference of State Bank Supervisors community banking conference, which will take place on Sept. 28 and 29 in St. Louis, will offer an interactive webcast feature for those who can’t make the research and policy conference in person. The webcast will be accessible through A video will feature banker success stories from Idaho, Montana, Oklahoma and Tennessee. Results of an annual survey of community bankers will be discussed, as well as the findings of research projects on business models, bank profitability, the cost of compliance and the role of capital.

Fed Paper Explores Relationship between Bank Size and Profitability

Two Kansas City Fed economists have concluded that the competitive disadvantage of community banks in the post-recession era has been overstated.  Their paper, “Has the Relationship between Bank Size and Profitability Changed?” concludes that the decline of profitability in recent years is more tied to economic factors such as unemployment rates than to the size of the bank itself. While the economists find that there are significant scale economies for the smallest community banks, this has not changed since the crisis. “While the smallest banks can benefit significantly from growth, the advantages of growth become progressively smaller until they are exhausted,” the economists write.  “For most midsized community banks, the increase in returns relative to size is modest; these banks would need large increases in size to realize significantly higher returns.”

Shorter Call Reports Proposed for Community Banks

Regulators want banks to comment on a proposal to streamline Call Reports. The proposal, which would apply to banks with less than $1 billion in total assets, would reduce the existing Call Report from 85 to 61 pages, and combine five schedules into a new supplemental schedule. The agencies say they are trying to balance banks’ requests for a less burdensome reporting process with their need to ensure the safety and soundness of the banking system.

Boston Fed President Cites CRE Risks in Interest Rate Moves

Low interest rates have led to rapid price appreciation in commercial real estate, Boston Fed President Eric Rosengren said at a speech at the Shanghai Advanced Institute of Finance in China. If the U.S. economy weakens, a decline in CRE collateral values could lead to losses for banks and erode their capital ratios. He suggested that U.S. monetary policymakers need to consider the CRE market as part of their decision-making. “Very low interest rates may move the economy closer to the central bank’s dual mandate goals more quickly than would higher interest rates, but it is important to evaluate ‘at what cost,’ ”he said.