I believe that the differences between domestic banking systems make it impossible to conceive of a single capital Accord that would be appropriate for all banks in all countries. Rather, supervisors may need to consider different approaches. For some, retention of the current Accord, supplemented by  6  BIS Review 52/2002  the second and third pillars, may be the best way forward. Other countries may elect the revised standardized approach of the New Accord. Still others may seek a hybrid of these two possibilities. We should recognize that these might be perfectly valid choices for the treatment of non-complex domestic banks, depending on national circumstances. Attempts to force a uniform approach on such banks that typically do not compete across national borders are unnecessary and possibly counterproductive. Instead, our energy would be better spent on sharing ideas and developing a common understanding of the challenges that supervisors face in dealing with noncomplex domestic banking organizations. Accordingly, at its meeting yesterday, the Basel Committee agreed to launch an initiative jointly with supervisors from many other countries to consider these issues and to develop practical guidance for supervisors on the issues associated with the capital regulation of smaller, non-complex banks. Let me be very clear. The purpose of this initiative is not to develop one or even several specific "Basel-approved" approaches to such regulation. Rather, we wish to provide practical assistance to supervisors confronting the challenges ahead to develop an appropriate regulatory framework suitable for their national circumstances and domestic banking systems.
I’ll highlight a few interesting trends that our examiners and analysts have observed through this monitoring. For the three-year period ended December 31, 2016, aggregate Second District community bank loans grew by 46 percent.1 These loans were often funded by non-core funding sources, which grew by 49 percent in the aggregate over the same period. This raised concerns among supervisors who consider non-core funding sources as higher risk from a safety and soundness perspective. Moreover, the primary source of loan growth for this period was commercial real estate. In response to this growing CRE concentration, the Fed intensified its monitoring of this sector and directed our supervisory focus toward how firms are risk-managing their CRE portfolios. More recently, during 2017, we saw more moderate asset growth for community banking organizations in the District—approximately 7.5 percent—which is in line with national peer group averages. Aggregate loan growth in 2017 was 10.5 percent for the year, which is also comparable to the national peer group averages. Over this period, we observed a small shift from commercial loan growth toward retail loan growth, specifically in the areas of one-to-four family homes and indirect automobile loans. With respect to funding in 2017, we observed strong growth in core deposits and less reliance on non-core funding sources—a positive trend from a safety and soundness perspective. In the competitive environment of the Second District, we’ve observed community banks seeking revenue from more niche businesses such as wealth management and indirect automobile lending.