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Investing.com -- Mary C. Daly, President and CEO of the Federal Reserve Bank of San Francisco, emphasized the significant role of community banks in the American financial ecosystem in her keynote speech at the 2025 Conference for Community Bankers (NASDAQ:ESXB), organized by the American Bankers Association.
In her address, Daly noted the vibrant and diverse nature of the U.S. banking system, which boasts over 4,500 FDIC-insured institutions. She highlighted the crucial role community banks play in supporting various geographies across the nation. They are integral to the financial fabric of cities, towns, and neighborhoods, particularly in providing essential financial services to small businesses. She cited the response of community banks during the COVID pandemic, where they facilitated funding from the Paycheck Protection Program for businesses, as a testament to their importance.
However, Daly emphasized that recognizing the importance of community banks does not guarantee their future. She stressed the need for a regulatory and supervisory framework that suits their size, complexity, and risk. She referred to the 2024 Conference of State Bank Supervisors Survey of Community Banks, which found elevated concerns over regulatory burden, almost as high as concerns over the cost of funds. A 2020 FDIC study revealed that federal financial regulators issued 157 final rules and programs for community banks from 2008 to 2019, averaging one every 28 days. This regulatory pressure, coupled with increased competition and rising compliance costs, has made community banking more challenging.
In her speech, Daly also addressed the tradeoffs in banking regulation. She asserted that the right answer lies somewhere in the middle of the regulatory oversight continuum. The goal of regulation, she said, is not to remove all risk, but to ensure that banks manage it well. To find the right balance, she suggested three principles: continuous evaluation and adjustment of regulations, ensuring the cost-benefit ratio of any regulation is justified, and considering the cumulative impact of rules and regulations.
Daly concluded by stating that regulations are tools that need to strike a balance between protecting the consumer and the financial system, and the costs to financial institutions, innovation, and economic growth. She advocated for carefully considered and appropriately tailored rules that evolve with the economy, to ensure that banks of all sizes manage risks appropriately and continue to thrive.
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