In her first speech since joining the central bank in November, Fed Governor Michelle Bowman said Monday that the health of the community banking sector has “improved significantly” since the financial crisis as she also raised concerns about commercial real estate and the agricultural sector.
Bowman noted that there were no community bank failures in 2018.
“Our job now is to ensure that community banks continue to remain strong,” Bowman said.
“We...want bankers to actively manage concentrations of credit risk, and be mindful that strong lending activity can strain liquidity,” she added.
During a question-and-answer session, Bowman said both the economy and Fed interest-rate policy are “in a good place.”
“I voted for our current policy. Inflation is close to the Fed’s 2% target and I am comfortable with the current stance,” Bowman said.
Bowman is the first Fed governor to fill the role created by Congress for someone with community banking experience to serve on the central bank’s board.
Prior to her appointment, Bowman was the state bank commissioner of Kansas. She also was a senior executive of Farmers and Drovers Bank, a community bank in Council Grove, Kan., that her great-great grandfather helped charter in 1882.
Bowman said she would travel widely in her new post and urged community bankers to voice their concerns about regulation.
“This dialogue is especially important as we continue to work to tailor our supervision and regulation to the size and risk profile of the institutions we oversee,” she said.
The Fed is trying to reduce regulatory burdens on the sector, while maintaining safety and soundness, she noted.
Bowman noted that concentrations of commercial real estate are rising at some banks and the Fed is reminding bankers “of the difficulties that such concentrations presented in the past.”
Another focus will be on concentrations of agricultural credit, she added.
Farm debt is increasing and delinquency rates on loans for both production and farm real estate have continued to edge higher, according to January report by the Kansas City Fed. This has led to an upward trend in farm bankruptcy filings.
Read: Wall Street Journal: A wave of bankruptcies is sweeping the U.S. farm belt
While there is no legal definition of a community bank, the FDIC said a $10 billion size limit has come to be used to define the sector.
Three out of four community banks hold assets of less than $500 million, Bowman said. While they hold just 17% of financial industry assets, the are responsible for about 53% of bank lending to small businesses, she added.