Fed Governor Sarah Bloom Raskin discussed how the Federal Reserve's approach to community bank examination and regulation aims to avoid stifling of lending in a recovering economy. She addressed the Maryland Bankers Association First Friday Economic Outlook Forum in Baltimore on January 6.

Raskin highlighted the importance of examiners understanding their local economic conditions in order to assess a community bank's decisions. She also expressed the need for clear and regular communication between examiners and community banks, particularly given that examiners may be on site only periodically.

Raskin drew a distinction between the supervision of the larger, more complex banks compared with community banks. "Notably, our supervision of large banks reflects the scope and complexity of their activities as well as their interactions with other firms and possible effects on financial markets, and incorporates systemic risk considerations that could arise from the failure of these banks," she said. Specifically, she pointed to capital planning and stress tests as critical aspects of supervision for these types of financial institutions.

Raskin said the Federal Reserve is working to ensure the supervisory program is appropriate for the varying sizes and types of financial institutions. As an example, she noted her participation on a Board subcommittee charged with reviewing the appropriateness of specific policies for community banks and the potential effects these policies could have on the availability of credit for sound borrowers.

View the full speech on the Board of Governors website.