Speaking at a joint conference by the Fed and the Conference of State Bank Supervisors, Powell told community bankers that the central bank is always on the lookout on ways to improve its exam program and recently launched a review of its consumer compliance supervision program.
"While Federal Reserve consumer compliance examiners have traditionally applied a risk-driven approach to supervision, we recognized the need to provide more specific guidance to our examiners," said Powell.
Under the new program, consumer compliance examiners will place a greater focus on an individual bank's risk profile, including its "consumer compliance culture and how effectively it identifies and manages consumer compliance risk," said Powell.
Powell said the agency will begin training examiners and reaching out to community banks later this year.
The governor also stressed the importance of community banks to the U.S. financial system and maintained the agency's commitment not to unduly burden smaller-sized institutions because of the 2010 regulatory reform law.
"The Federal Reserve will continue to be alert to the possible unintended consequences of regulatory policies, and we welcome input from community bankers as we develop and implement those policies," said Powell.
Regulators have been under immense pressure by community banks and their allies in Congress to ensure that such institutions would not face overly complex rules. As a result, regulators have sought to be as responsive as possible, often providing community bankers with "cheat sheets" to describe how a rule would apply to their institution.
Most recently, U.S. regulators offered a series of concessions to community banks for a slate of capital and liquidity rules under Basel III when they released their final rule in June. Smaller-sized institutions feared tougher rules would have curbed their lending and hurt their businesses.
But Powell went further, suggesting that U.S. agencies should take a second look to ensure they made the appropriate changes in the capital rules.
"While we have tried to tailor rules to the size and complexity of institutions, we may not have gotten the balance right in every instance," said Powell.
The governor said the Fed will continue to "assess the effects of new rules" and "to consider whether modifications to rules," or how they are implemented could still meet safety and soundness goals, but perhaps with a "lesser burden on this class of depository institutions."