Bernanke Tries to Woo Community Bankers

Federal Reserve chairman Ben Bernanke told an audience of community bankers today that even though the Fed’s low interest rate policy is thrashing their profits, the Fed has to keep the policy in place to promote a US economic recovery.

In a direct statement on the impact of low interest rates, Bernanke said:

The purpose of the Federal Reserve’s policy of low interest rates is to speed the economic recovery, which will increase loan demand and opportunities for profitable lending, among many other benefits, and thus, ultimately, lead to higher net interest margins. In short, it is necessary to set the negative effects on net interest margins against the positive effects of a strengthening economic and lending environment. Moreover, the benefits of a stronger economy for the performance of existing assets should also be taken into account; as you know, delinquencies decline as the economy improves. Putting all these considerations together, in the longer term the overall effect on bank profitability of an appropriately accommodative monetary policy is almost certainly positive.

The Fed chief also addressed regulatory concerns, telling the bankers that the Fed would protect them against regulations meant to enforce the Dodd-Frank rules on ‘too-big-to-fail’ banks.

Bernanke’s speech is available here.