Community Banks, Fed Connect Through the Community Depository Institutions Advisory Council
by Gavin Miller, Supervisory Financial Analyst, Board of Governors, and Cynthia Course, Principal — Policy and Implementation, Federal Reserve Bank of San Francisco
How does the Federal Reserve Board of Governors (Board) know what is on the minds of community bankers? Board members have always sought the views of community bankers in a variety of ways to learn more about the state of the economy and banking conditions. More recently, the Board decided that it would be useful to have a more formal, systematic way to communicate with and understand the issues that are of greatest concern to smaller financial institutions and the communities they serve.
The Board established the Community Depository Institutions Advisory Council (CDIAC) in 2010 as a mechanism for community banks, thrift institutions, and credit unions with assets of $10 billion or less to provide input to the Board on the economy, lending conditions, and other issues. At the same time that the Board established the CDIAC, the 12 Federal Reserve Banks established similar local advisory councils, and one member of each Reserve Bank’s council is selected to serve on the Board’s CDIAC. This article provides additional information on the CDIAC’s structure, membership, and purpose.
The Board has a long track record of seeking input from industry and public representatives on matters that fall within its mandate. Before the Board formed the CDIAC, the Thrift Institutions Advisory Council (TIAC) played a similar advisory role. The Board created the TIAC in 1980 to advise on the implementation of the Monetary Control Act of 1980. Over time, the TIAC also advised the Board on broader issues, such as the economy and financial markets.
By 2010, however, much had changed: not only had the TIAC’s original purpose been met, but the percentage of deposits held by thrifts had declined significantly. At the same time, the Dodd-Frank Wall Street Reform and Consumer Protection Act reaffirmed the Federal Reserve’s role in community bank supervision and added a broader focus on maintaining financial stability. Also, experience during the financial crisis reminded the Board that credit imbalances could occur in local markets and that smaller institutions encounter financial and operational challenges that are very different from those encountered by larger institutions. Thus, the Board decided to refocus its community-based advisory council and widen its institutional and geographical scope by replacing the TIAC with the new CDIAC.
Reserve Bank Councils
Reserve Banks historically have worked with community banking organizations not only because of their supervisory responsibilities but also because the Reserve Banks provide financial services to banking organizations in their Districts. Reserve Banks use contact with community banking organizations to better understand local market dynamics and have employed a variety of mechanisms to increase their understanding of community banking perspectives. Those local initiatives are continuing today. So, when the Board of Governors introduced the CDIAC program in 2010, the Reserve Banks were able to supplement their existing communication channels.
By early 2011, each Reserve Bank had identified a cross-section of senior officers representing community banks, thrift institutions, and credit unions to serve on the local councils. These councils generally comprise between nine and 12 members, who bring diverse backgrounds and perspectives to those meetings. Each member will generally serve for a staggered three-year term, although interim turnover may occur as a result of changes in individual depository institution management, asset growth, or mergers. Importantly, one member from each local council represents the council at the semiannual Board CDIAC meetings in Washington, D.C.
One benefit of the regionalized structure of the CDIAC program is that it provides an opportunity for all local councils to discuss the same issues with institutions of varying size, charter type, and location. This approach helps to ensure a robust discussion and consideration of a variety of perspectives on current issues at the subsequent Board CDIAC meetings.
Local Reserve Bank councils meet at least twice a year, usually a few weeks before the Board CDIAC meetings, but they may meet more frequently. Generally, local councils have some flexibility in setting their own meeting agendas, and members may raise discussion topics that are not formally on the agenda. However, the agendas for the local council meetings that precede the semiannual Board CDIAC meetings have a consistent core of agenda topics provided by the Board to ensure that perspectives on significant topics are heard from all areas of the country. The Board members are therefore able to track trends in these issues across the United States over time, while local councils retain the flexibility to add topics to their agendas to reflect issues of interest.
John Evans, chief executive officer of D.L. Evans Bank in Burley, Idaho, chairs the Federal Reserve Bank of San Francisco’s CDIAC. Evans says: "After attending three local council meetings, two as chairman of the council, I believe the members are giving excellent input to the leadership of the San Francisco Fed. I appreciate that the Fed wants input from community institutions, and I believe that Fed officials are listening and that positive changes will result from our meetings.
The primary purpose of the CDIAC, however, is to ensure that the perspectives of community institution members are understood not just locally but also in Washington.
The Board’s Council
After the local councils hold their semiannual meetings, a member from each council attends a two-day CDIAC meeting with the Board at its headquarters in Washington, D.C. These meetings provide an opportunity for members to have discussions both among themselves and with the Board members and senior staff.
Want to Know More?
The Reserve Banks and the Board maintain information about their respective councils on their websites.
On the first day of each meeting, the local council representatives have an opportunity to share and discuss with each other their councils’ perspectives on the questions provided by the Board to the local councils. The goal is to develop a response to each question that includes appropriate regional nuance. These viewpoints are summarized and provided to the Board members. On the second day, the council members meet with the Board members and senior Board staff from the divisions responsible for monetary affairs, research, and bank supervision.
"The CDIAC provides us with timely, actionable, ground-level information about local economic and banking conditions from the unique perspective of community institutions," Federal Reserve Board Governor Elizabeth A. Duke says. "Members boil down the wide-ranging Reserve Bank council discussions into rich feedback from across the industry and across the country. That feedback helps us to stay in touch with local trends."
Evans adds, "Being able to meet and discuss community banking issues with Chairman Bernanke and the Board of Governors was quite an experience. The Chairman and the Governors want to hear about issues affecting community financial institutions. I was very impressed by the fact that this group of executives and Federal Reserve officials are determined to improve our financial system."
Making a Difference
The CDIAC program provides an opportunity for community depository institutions to share their first-hand knowledge and experience on wide-ranging economic, operational, and supervisory issues with senior Federal Reserve officials at the local and national levels. These ongoing discussions provide a particularly useful and relevant forum for improving the Federal Reserve’s understanding of the effect of legislation, regulation, and examination activities on all community banking organizations, regardless of the supervising agency.
The first Board CDIAC meeting was held in the spring of 2011, and a total of three meetings have been held thus far. Results of the feedback from the initial meetings are already apparent. For example, at the first CDIAC meeting, members suggested that the Federal Reserve should be clearer about the applicability of its rules and guidance to community institutions. Based on this feedback from the CDIAC and other sources, the Federal Reserve now indicates more explicitly which institutions are subject to its supervisory guidance. In particular, new supervisory letters explicitly state whether and how the guidance applies to community institutions. Although this change is relatively simple, it should help those institutions to avoid spending the time to read and understand supervisory guidance that does not apply to them.
In addition, the local Reserve Bank councils, with aggregate membership representing more than 130 community financial institutions, have met at least three times to discuss current concerns about the economy, banking and lending conditions, and other issues.
Evans notes that one of the top benefits of the CDIAC is the opportunity to make a positive difference in the financial industry. "CDIAC members are ‘Main Street’ bankers that help communities throughout the nation prosper. With a strong community financial institution system, our communities can grow and prosper. I recommend that community bankers and credit union executives get involved with their CDIACs and give positive recommendations for improvement to our financial system."
If community banking organizations are interested in learning more about their local councils or contributing to the dialogue, they are encouraged to contact their local Reserve Bank or council members to share ideas or raise issues for discussion at future meetings.