Community Banking Connections

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The Community Depository Institutions Advisory Council’s Impact After Five Years
by Courtney M. Markovich, Supervision Manager, and Joe Ferrari, Assistant Examiner, Federal Reserve Bank of Chicago

The community banking landscape has changed significantly in the years following the financial crisis, and the Board of Governors of the Federal Reserve System (Board) remains committed to addressing the unique needs and concerns of community banks in this new financial landscape. A critical component of this commitment is soliciting and responding to the opinions of bankers. One of the most effective channels of communication between community bankers and the Board remains the Community Depository Institutions Advisory Council (CDIAC).¹

The Evolution

The CDIAC was established in 2010 by the Board to gain insight into community depository institutions’ views on the economy, lending conditions, and other banking industry issues. Each of the 12 Federal Reserve Banks selects members from representatives of banks, thrift institutions, and credit unions to serve on local advisory councils. One member from each Reserve Bank council serves on the CDIAC, which meets twice a year with the Board in Washington, D.C.

During the five years since the meetings began, executives from 33 institutions across 21 states have served on the CDIAC. Although these institutions have ranged in total asset size from $48 million to $9 billion, the majority (18) of council members come from community banking organizations with assets ranging from $1 billion to $5 billion. There has also been a diverse mix of the types of institutions represented on the CDIAC: state member and nonmember banks (13), thrift organizations (10), credit unions (5), bank holding companies (4), and one national bank. As seen in the table, the 2016 CDIAC membership continues to reflect this diversity with respect to both asset size and institution type.

Conversations Transform into Results

Since its inception, the CDIAC has proven successful in providing perspective to and influencing the Board on a variety of regulatory and policy issues related to community banks.

According to S. Boyce Brown, president and chief executive officer of Extraco Corporation in Waco, TX, and chair of the Federal Reserve Bank of Dallas’ local advisory council, the CDIAC “enriches Fed research and the banking industry at the same time, including periodic offsite round tables and surveys to get close to the bankers and markets themselves for an enriching primary data perspective.”

Michael J. Castellana, president and chief executive officer of State Employees Federal Credit Union in Albany, NY, chairs the Federal Reserve Bank of New York’s local advisory council and is also the 2016 incoming chair of the CDIAC. Castellana says, “I have seen a number of issues that were explored at our CDIAC sessions and later as part of the national dialogue. One of the most significant issues has been the technological and system expansion of our payment systems and the central role of the Federal Reserve to ensure we will have a balance of innovation and system integrity.”

Jeffrey Plagge, president and chief executive officer of Northwest Financial Corp. in Arnolds Park, IA, and chair of the Federal Reserve Bank of Chicago’s local advisory council, concurs, stating that “the discussions are robust and interactive, and the Governors are truly interested in the results of our conversations. I’ve seen it directly with our discussions on the payments system in the United States and the Federal Reserve’s current activity and initiatives centered around faster and more secure payments.”

The Second Quarter 2015 issue of Community Banking Connections featured an interview with Chair Janet Yellen, in which she emphasized the Board’s use of the CDIAC as a formal channel to hear the views of community bankers.² When asked to share examples of how the Federal Reserve has modified supervisory policy to provide regulatory relief to community banks, Chair Yellen noted several items, including the following:

• Increasing the asset threshold of its Small Bank Holding Company Policy Statement from $500 million to $1 billion and applying the policy statement to savings and loan holding companies.³ The policy statement facilitates the transfer of ownership of small community banks and savings associations by allowing their holding companies to operate with higher levels of debt than would normally be permitted. Holding companies that qualify for the policy statement are also excluded from consolidated capital requirements, although their depository institution subsidiaries continue to be subject to minimum capital requirements. All qualifying firms still must meet certain qualitative requirements, including those pertaining to nonbanking activities, off-balance sheet activities, and publicly registered debt and equity.
• Reducing the regulatory reporting burden for bank holding companies and savings and loan holding companies with less than $1 billion in total consolidated assets that meet the qualitative requirements of the policy statement.⁴ Before this change was made, companies subject to the policy statement reported 65 pages of data items quarterly. They now need to report only eight pages of data items semiannually.

A considerable number of institutions across the nation were positively impacted by these recent changes.

When asked for his perspective on the importance of the CDIAC, Thomas M. Petro, president and chief executive officer of Fox Chase Bank in Hatboro, PA, and chair of the Federal Reserve Bank of Philadelphia’s local advisory council, stated, “I am constantly amazed at the remarkable differences in the community banking ecosystem. It seems as though no two organizations are the same. Each is pursuing a different and unique strategy to serve diverse and varied market segments, even within the same District.”

This is true of all community banking organizations regardless of the District in which the institutions reside. And although community banks have a diverse set of strategies, their needs prove to be similar, making the CDIAC a fruitful venue for communicating through one voice.

Janet Garufis, president and chief executive officer of Montecito Bank & Trust in Santa Barbara, CA, and the 2016 vice president of the CDIAC, stated, “I have developed great respect and appreciation for my fellow members. Collectively, I think it is not an overstatement to say that we each see our role on the CDIAC as a responsibility to represent the interests and needs of community banks as we articulate the current issues we specifically face.”

Recent Developments

The CDIAC met with the Board of Governors in Washington, D.C., on November 6, 2015. In addition to being prepared to discuss the standard agenda topics (current banking conditions, economic conditions and indicators, examination practices, and regulatory matters), members were asked to provide information on how technology is affecting (1) credit and financial services products and (2) access to those products in the communities they serve, including low- and moderate-income communities. They also discussed the effect of the changing landscape of branch banking and the increasing availability of digital banking channels, again including low- and moderate-income communities. CDIAC meeting summaries can be accessed via the Board’s website.⁵

Community banking organizations interested in learning more about their local councils or contributing to the dialogue are encouraged to contact their local Reserve Bank or council members to share ideas or raise issues for discussion at future meetings. More information on the history, structure, and meeting frequency of the CDIAC can be found in the Third Quarter 2012 issue of Community Banking Connections.⁶