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ICBA Testifies Against Eliminating Fed Supervision of Community Banks

Washington, D.C. (March 17, 2010)—The Independent Community Bankers of America (ICBA) today told Congress that it opposes separating the Federal Reserve’s monetary policy role from its role as financial supervisor. In testimony before the House Financial Services Committee, Jeffrey Gerhart, president of the Bank of Newman Grove in Newman Grove, Neb., said that congressional proposals to eliminate the Fed’s supervision of state member banks would harm Main Street local communities and the community banks that serve them.

“ICBA is very concerned that limiting the Federal Reserve’s oversight to only the largest or systemically dangerous holding companies could lead to a bias in favor of the largest financial institutions,” Gerhart said. “This is a risky approach to financial reorganization and a path that the United States should not go down.”

Gerhart noted that the Fed for decades has played a critical role in the bank regulatory system as the supervisor of state member banks and holding companies. He said that ICBA believes the local nature of the regional Federal Reserve Banks, working in harmony with state bank regulators, gives them a unique ability to serve as the primary regulator for state member banks, the vast majority of which are community banks serving consumers and small businesses. This gives the Fed an efficient means for gauging the soundness of the banking sector, which is critical to developing and implementing sound monetary policy.

Gerhart cited recent testimony from Federal Reserve Chairman Ben Bernanke on how the Fed’s supervision of community banks gives the central bank insight on what is happening at the grassroots level to lending and the economy. Gerhart noted that community banks are disproportionately strong small business lenders, and the Fed’s supervision of community banks must be maintained if monetary policy is to promote this important sector of the economy. Meanwhile, regulation of community banks gives the Fed a window on the vast array of local economies they serve.

Finally, Gerhart noted that state-chartered community banks played no role in the current financial crisis, and no one has criticized the Fed’s supervision of community banks. “It is not logical to strip the Federal Reserve of its authority over community banks and their holding companies when the record shows that it has been a very effective regulator of community banks,” he said.

To read ICBA’s testimony, visit www.icba.org.