Yellen: Community banks still needed

Federal Reserve Chairwoman Janet Yellen sought to assure community banks Thursday that they have a critical role to play in the banking system.

Speaking before the Independent Community Bankers of America, Yellen said the financial system needs “institutions of different sizes,” and said they should not face the same regulatory load as their much larger competitors.

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“We are taking a fresh look at how we supervise community banks and possible ways that supervision can be smarter, more nimble, and more effective,” she said. “We know that a one-size-fits-all approach to supervision is often not appropriate.”

Yellen said smaller banks should not be completely exempted from some of the new regulations and requirements implemented since the financial crisis, but it could tailor the rules to strike a balance between needed supervision and minimal burden on the institution.

She also hammered on the lingering effects of “too big to fail, as community banks have long argued that the largest institutions enjoy an unfair advantage thanks to their size and the perceived backing of the government.

While regulators have taken a number of steps to tackle the issue, including several provisions of the Dodd-Frank financial reform law, Yellen said there was more to be done.

“Our work is not finished,” she said, noting ongoing efforts to put in place further requirements for the largest of the large institutions, such as increased leverage or capital requirements.