Atlanta Fed president Raphael Bostic (left) and Michael Barr, the Federal Reserve's vice chair of supervision and regulation
Dear southeastern banking colleague,
I have now been in the Sixth District for 18 months, and I’m reminded of a tenet I learned early in my examination career: banking supervision is a relationship business. Some might be puzzled by this, but strong relationships are critical among us, our state member banks, regulatory partners, and broader financial system participants during normal course of business and crisis times. Here are some reasons these relationships matter:
- When an institution is growing organically or through acquisitions, it’s our strong and transparent relationship that enables honest and comfortable dialogue early on.
- Broader industry relationships allow for identification of emerging risks and trends, facilitating more timely information sharing.
- Our relationships proved valuable last year when helping inform bankers about new funding programs during heightened deposit and funding pressures and an uncertain environment.
Our stakeholders need to know they can rely on us in normal times as well as volatile ones. This is why we maintain a robust outreach program with regular communication with bankers, trade associations, state regulators, and the public to share important timely information and listen to concerns, wants, and needs. We hear what is working well and what can improve, and this fosters productive conversations and paths to solutions.
On this note, May was a busy month for outreach, and I had the pleasure to participate in two important events in Florida. Each year the Atlanta Fed’s president, Raphael Bostic, visits areas in the Sixth District to learn more about civic engagement, economic conditions, local initiatives, and promising partnerships, with the goal of learning what makes local economies resilient and promoting an economy that works for everyone.
As part of these visits, we convene banking executives so that Federal Reserve System leaders can hear about local banking conditions, discuss supervision and regulation activities, and learn about banking innovations and potential obstacles that might hinder the delivery of financial services. On May 17, we had the pleasure to welcome Vice Chair of Supervision and Regulation Michael Barr from the Board of Governors of the Federal Reserve System to participate in a bankers’ roundtable hosted by President Bostic. Following the bankers roundtable, we convened executives representing property insurers, insurance brokerages, real estate firms, and banks to discuss dynamics and impacts of rapidly rising insurance premiums in the state.
Our bankers roundtable attendees included executives from Florida State Member Banks, banks and credit unions represented on our Community Depository Institutions Advisory Council, and as well as our state regulatory partners from the Florida Office of Financial Regulation, banking service providers, and the Florida Bankers Association.
These roundtables are as much about listening as they are disseminating. In this photo, I’m in "full listening" mode as I hear from one of our roundtable participants.
Some of my major takeaways from this session:
- Participants noted overall strength in the economy with continued population growth and strong loan demand in the state.
- Areas of concern include consumer pressures with higher interest rates coupled with inflation.
- Additionally, there is a lack of affordable housing compounded by the rising costs of maintaining a household and rapidly increasing insurance premiums.
As a Florida resident, I have witnessed this troubling and unsustainable trend of rising insurance costs. Some reports indicate that premiums in Florida have increased 40 percent per year recently. Our second insurance roundtable looked to uncover root causes and remedies for what could be a crisis in the state with far-reaching implications. Risks to consumers, underwriters, and lenders are very real with added financial stress and diminished or no coverage for properties across the state, particularly those in frequent storm areas and low- and moderate-income areas. Although there’s no silver bullet to fix this problem, legislators and industry participants have made concerted efforts to collaborate and find solutions. Amid rising costs for Florida consumers and businesses alike, bankers will need to stay abreast of market dynamics and how increased costs and underinsured areas might affect their lending portfolios.
In the Atlanta Fed’s Supervision and Regulation Division, we have contributed two tools—HOAM and CREMI—that monitor residential and commercial real estate conditions by local markets. They are publicly available on atlantafed.org, and we hope that sharing our rich data and analysis allows us to shine a light on trends and issues like those that residents and businesses in Florida are experiencing. Later this year, a new release of HOAM will reflect granular insurance costs in its home affordability analysis.
My second outreach visit in May was to Amelia Island for the Atlanta Fed’s annual Financial Markets Conference, whose theme this year was "Central Banking in the Post-Pandemic Financial System." This signature event brings together leading experts from financial institutions, investment funds, and academia to discuss emerging issues and their monetary policy implications. Bringing my supervisory lens to the conference, a couple of themes resonated with me listening to sentiment from attendees across different sectors, such as:
- Every banking crisis since the Great Depression looks different. There is no one-size-fits-all approach, but we need to balance stability with flexibility when addressing shocks to the financial system.
- Banks must have robust contingency funding plans. As stated in the Addendum to the Interagency Policy Statement on Funding and Liquidity Risk Management issued last year, such plans demonstrate operational readiness to handle multiple scenarios and readily access the Discount Window in times of need. We still have work to do to destigmatize Discount Window borrowing.
These events provided a great opportunity for me to network within and outside my normal circles and reinforced the importance of strengthening relationships. Our outreach is a critical component of our supervisory approach to build trust, communicate timely information, and hear from our stakeholders. With this in mind, I would like to ask you to join our S&R mailing list by emailing supervision@atl.frb.org. You will receive our monthly newsletter and invitations to our signature events such as our Banking Outlook Conference that we host every February. Please reach out at the email above if you have thoughts you would like to share or if I can help in any way.
Joe Davidson
Senior Vice President, Supervision and Regulation
The Federal Reserve Bank of Atlanta