Community bankers up to their elbows in loan workouts for struggling ag customers really need to understand what the carryover debt looks like and be cautious to not extend that debt year over year. That’s the advice given by Federal Reserve Board Governor Michelle Bowman during a March 28 Telephone Town Hall conducted in conjunction with the Independent Community Bankers of New Mexico Ag Lenders Conference.
Bowman has been making the rounds in her attempt to listen to and learn from community bankers. She addressed the National Agricultural Credit Conference in Washington, D.C on March 25.
Prior to taking questions from the audience, both on-site and those listening from around the country, Bowman gave prepared remarks on the state of agriculture, focused both in and beyond New Mexico.
The question about how Fed examiners might approach loan restructuring was posed by banker Jeff Gerhardt, who operates in the heart of ag country at the Bank of Newman Grove, Neb. As to what a banker might expect from his or her Fed examiner on the topic of restructuring loans, Bowman said: “You need to understand how it originated, how long it’s been financed and whether or not there’s an ability to repay.”
Bowman cautioned bankers to be realistic with their borrowers about their financial situation. Examiners, she said, will expect bankers to explain the conditions of their troubled loans, including their customers’ cash flow situation.
Greg Hohl of Wahoo State Bank, in Wahoo, Neb., asked Bowman to address her position on a two-tiered regulatory system. Bowman pledged her attention to finding a more meaningful and specific approach. “Maybe what we’ve not spent enough time on is looking at the burdens placed on community banks,” Bowman said, questioning whether the $10 billion threshold is the right demarcation point, or if there might be a different structure based on risk capacity, or “ a combination of factors that helps identify the risk factors for a bank to the financial system more generally.”
Bowman said her focus as a banker, a state regulator, and now a federal regulator was to ensure the Fed was “doing the appropriate level of safety and soundness supervision to ensure that our banks are financially stable and resilient.”
With CECL implementation on the minds of bankers everywhere, Bowman admitted the implementation was a big issue for banks of all sizes, but no changes to the plan would be forthcoming. The Fed, she said, was in a watch and monitor phase.
“We have a schedule for implementation for the CECL regulation,” Bowman said. “We’re committed to watching the impact within the next three years, how it’s going to be implemented, what the consequences are, what some of the sticking points are, and whether at that point we need to review that again.”