WASHINGTON -(Dow Jones)- The Federal Deposit Insurance Corporation and state bank supervisors must work together to help small banks stay profitable without taking on greater risks for their institutions or the FDIC's insurance funds, FDIC Chairman Don Powell said Thursday. Recent research by the FDIC's Kansas City Regional Office shows that in that seven-state region, many of the rural counties are experiencing major population declines and low rates of deposit and loan growth, Powell said.
"Our concern is that if population levels continue to fall in rural areas, some banks may not be viable in rural America or they may choose to increase risk taking just to maintain their loan and deposit bases," Powell said in prepared remarks to the annual Conference of State Bank Supervisors in Salt Lake City.
"Neither scenario would be good for community bankers or their regulators," Powell said.
The FDIC and state bank supervisors need to build on their already strong partnership to further promote innovation and efficiency among small banks, he said.
The FDIC is already approving of expanded activities for state banks that have met capital requirements and want to engage in activities that do not pose a major risk to the FDIC insurance funds, Powell said.
Under Section 24, the FDIC has the authority to permit a state bank or its subsidiary to engage in activities allowed under state law, which national banks or their subsidiaries are not allowed to participate in.
Most state banks have asked the FDIC for the authority to invest in securities or to sell real estate. However, the FDIC has approved some unusual requests, Powell said.
In one instance, the FDIC approved of a bank buying a business that tests for personality characteristics and leadership skills. In another case, the FDIC allowed a bank to engage through subsidiaries in printing services and the production of microfilm.
"I'm not here to say that community banks should consider getting into practically every line of work from real estate development to psychological testing. In fact, any deposit insurer who thought that way probably needs some psychological testing of his own," Powell said.
"But I do believe that state-chartered institutions, with the encouragement of their state supervisors, should take a very close look at the opportunities presented by Section 24 as they strive to be innovative and stay competitive in a changing marketplace," he said.
-By Deborah Lagomarsino, Dow Jones Newswires;202-862-9255; deborah.lagomarsino at dowjones.com
(This story was originally published by Dow Jones Newswires)
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