Community Banking Connections

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November 2025

View from the District: Evolving Automotive and Agriculture Industries and Thoughts on Banking
by Julie Williams, Executive Vice President, Supervision and Regulation, Federal Reserve Bank of Chicago*

The Federal Reserve’s Seventh District, which encompasses parts of Illinois, Indiana, Iowa, Michigan, and Wisconsin, contains a rich tapestry of industries ranging from agriculture to high-tech finance. Each industry is fundamental to the Midwest economy and contributes to the region’s unique business landscape. For example, the Seventh District has a long history of automotive manufacturing and innovation centered in Detroit and agricultural production across its rural communities.

Many of the District’s important industries, including both traditional and newer technology-focused industries, are evolving to meet consumer demand and address rising input costs, supply chain uncertainty, new competitors, and other challenges. In this article, I share my view of trends in the Seventh District automotive and agriculture sectors as well as some broader observations on banks expanding into banking-as-a-service (BaaS) and engaging in fintech partnerships.

Seventh District Industries

Automotive Sector

Automotive sector data in the Seventh District show mixed results. Although Michigan remains the national leader in automotive employment, the market appears to have lost momentum in recent years. Unemployment in the state has recovered from the spike seen during the COVID-19 pandemic but has begun to tick up again, remaining slightly above 5 percent as of July 2025.¹ Employment in motor vehicle manufacturing has fully rebounded from the pandemic downturn and has remained relatively consistent above pre-pandemic levels over the past three years. However, employment in motor vehicle parts manufacturing in the state has not returned to pre-pandemic levels and has steadily trended downward from a peak of roughly 126,000 persons in December 2022 to about 110,000 persons as of June 2025.² The data on real gross domestic product (GDP) of motor vehicles, bodies, trailers, and parts manufacturing in Michigan, although only available through 2023, also present a mixed picture. The GDP in these industries in Michigan indicates a full recovery following 2020 but suggests a potential downward trend in the most recent data.³ These trends underscore the importance for community bankers to closely monitor the automotive industry's performance because understanding these dynamics can inform lending practices and ensure that bankers are well positioned to contribute to the economic resilience of Michigan’s communities.

As a whole, the automotive market continues to adapt to changing consumer demands for increased electric vehicle options while retaining a sufficient variety of choices and price points. To provide insight on current and future trends, the Federal Reserve Bank of Chicago gathers industry professionals, researchers, and business leaders together each February for its annual Automotive Insights Symposium at the Bank's Detroit Branch.^4,5 Topics from this past year centered on electrification, supply chain fragility as highlighted during the COVID-19 pandemic, global protectionism and trade uncertainty, and overall vehicle affordability challenges. Although the topics were varied, one key theme resonated throughout: uncertainty.

Several factors are contributing to this uncertainty, including new international competitors entering and gaining a global share of the auto market, increased manufacturing reliance on supply-constrained semiconductor chips and geopolitical instability in and around significant chip-producing countries, and new supply chain disruption in heavy rare earth elements, which are used in all vehicles and not readily available in the United States.

Nevertheless, supply chains have largely recovered or adapted since the weaknesses became clear during the pandemic, with many public and private projects in the works to secure long-term chip manufacturing capacity. While competition from new car manufacturers is increasing, the competition could push the automotive industry in the Seventh District forward and spur necessary innovation and resilience to meet U.S. consumer demands and overcome current challenges.

Agriculture Economy

Agriculture (Ag) remains a vital part of rural communities throughout the Seventh District. Community banks continue to play a leading role in financing the needs of farmers and Ag producers in their markets. Ag conditions continue to show signs of softening given a decreasing trend in grain commodity prices since peaking in 2022.⁶ Livestock producers have also seen price volatility in recent years. Both row crop farmers and livestock producers continue to deal with the impact of rising input costs for their operations, which are squeezing margins and decreasing operational cash flow available for debt service. 

Several institutions within the Seventh District have Ag lending concentrations. While bankers in the District have expressed growing concerns over the working capital position and cash flow adequacy of their Ag customers, there is still a relatively low level of noncurrent Ag loans in the District measuring 0.77 percent as of June 30, 2025. That said, an upward trend is beginning to emerge as noncurrent Ag loans were 0.35 percent, 0.55 percent, and 0.56 percent at year-ends 2022, 2023, and 2024, respectively. Bankers with Ag lending concentrations are reminded to refer to Supervision and Regulation (SR) letter 11-14, “Supervisory Expectations for Risk Management of Agricultural Credit Risk,”⁷ which lists examples of effective risk management practices that can be incorporated into underwriting, administration, and monitoring practices for Ag borrowers. Establishing a robust and effective credit risk management framework can mitigate credit risk embedded within a bank’s Ag portfolio.

Thoughts on BaaS and Fintech Partnerships

I spent much of 2024 on a temporary assignment in the Federal Reserve Board’s Division of Supervision and Regulation as the interim head of regional and community bank supervision. During this time, I was able to engage directly with Federal Reserve System examiners, supervision management, and bankers to discuss advancements in and the evolution of the banking industry. I was able to deepen my understanding of how banks are experiencing rapid growth through BaaS (e.g., cryptoasset-related activities and distributed ledger technology) and fintech partnerships.

Based on my recent Board staff experience, I would like to share a few observations. Financial institutions that take a prudent approach and focus on managing risk tend to have better outcomes. Effective practices that I have observed among banks engaging in BaaS or partnering with fintechs involve efforts to establish or enhance risk management practices prior to entering into these new ventures. These banks also communicated effectively with regulators about their plans and demonstrated effective management over significant client and customer relationships.

BaaS and fintech partnerships offer opportunities for continued innovation that can potentially bring about many benefits to consumers, businesses, and the banking and payment systems. To realize these benefits, I would encourage bankers at financial institutions who want to enter this space to first understand the legality of these activities as well as the full spectrum of benefits and risks and then continue to monitor and manage them closely as the business evolves. 

Conclusion

Since the pandemic, the economic landscape across the Seventh District has experienced significant change and demonstrated considerable resilience. Within the Seventh District, we have encountered unique obstacles and taken opportunities to gain a competitive edge while navigating the complexities of BaaS and fintech partnerships, adapting to the transformative shifts occurring in the automotive sector and managing the current challenges in the agricultural economy.

For community banks across the System, understanding sectoral trends and their effects is paramount. Community banks’ close ties to local businesses and farmers uniquely position them to respond quickly to community needs by funding opportunities while keeping a keen eye on — and appropriately managing — the associated risks. By remaining agile and responsive to the needs of their communities, community banks will continue to be key cornerstones of resilience and growth through periods of evolution and uncertainty.

• * Julie Williams is the head of Supervision and Regulation at the Federal Reserve Bank of Chicago. Her insights and perspectives on the current banking landscape have been shaped by this role and rotational positions with the Federal Reserve Board, including her current work as acting deputy director of the Division of Supervision and Regulation.
• ¹ See unemployment rate data in Michigan.
• ² See employment data for motor vehicle and for parts manufacturing in Michigan.
• ³ See the data on real GDP of motor vehicles, bodies, trailers, and parts manufacturing in Michigan.
• ⁴ More information is available on the Annual Automotive Insights Symposium, including presentations and full transcripts.
• ⁵ See additional research by the Federal Reserve Bank of Chicago on the automotive industry.
• ⁶ See the U.S. Department of Agriculture prices received for corn and soybeans by month.
• ⁷ See SR letter 11-14, “Supervisory Expectations for Risk Management of Agricultural Credit Risk.”