Community Banks and the Federal Reserve

By Thomas M. Hoenig

Introduction:

My plan this morning is to talk first about the role community banks play in the U.S. economy. Then, I will turn to a more detailed discussion of how they relate to each of the Federal Reserve's three missions - monetary policy, banking supervision and regulation, and the payments system. My central theme is that while community banks hold on a small share of the nation's banking assets, they provide important financial services to some key sectors of the economy. Their importance in the economy, in turn, supports the Federal Reserve's interest and oversight of community banks. In fact, community banks play significant, though perhaps not equal, roles in each of the Federal Reserve's three missions. Thus, the Federal Reserve has a strong interest in understanding issues facing community banks and in helping to make possible their continued participation in the nation's financial and payments systems.

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