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Investing.com -- Federal Reserve Governor Michelle W. Bowman, in her address at The Robbins Banking Institute Lecture Series at Fort Hays (LON:HAYS) State University, emphasized the significant role community banks play in the U.S. banking system and regional economic growth. She also highlighted the regulators’ responsibility to support these banks.
Community banks, according to Bowman, are essential to the American economy, providing business and consumer opportunities and investments. Without them, 30% of American communities would lack a physical bank location. She noted that the U.S. is unique in its provision of financial services in remote and rural areas, largely owing to community banks.
Community banks allow for understanding of unique financing needs of local businesses, developing specialized services for specific segments of the economy, including agriculture and small business lending. They also often serve as civic leaders, driving investment, philanthropy, and financial support for the local economy.
Despite the significant role of community banks, public debates often underplay their importance, imagining a banking system with fewer banks as equally effective. Bowman refuted this, stating that aggregate asset size is not an accurate indication of these banks’ importance. She argued that a decrease in the number of community banks could have devastating consequences for consumers and businesses, especially in rural and underserved banking markets.
Bowman also noted the decline in the number of community banks over the past 20 years due to bank consolidation through mergers and a lack of new bank formation. This trend has been influenced by competition from nonbank financial service providers and increasing regulatory burdens on the community banking model.
She emphasized the importance of developing future leadership for community banks and promoting a more efficient bank applications process. She also stressed the need for tailoring regulation and supervision to match the size, risk, complexity, and business model of an institution, particularly for smaller and community banks.
Bowman concluded by stating that community banks enable the economic success of the U.S. and will continue to support financial opportunities for future generations. She expressed confidence in the bright future of community banking, as long as regulations and guidance are right-sized and appropriate, and investment in innovation and growth is prioritized.
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