CDIAC: One Important Way the Board Takes the Pulse of Community Banks and the Economies They Serve
by Scott Zurborg, Senior Examiner, Supervision and Regulation, Federal Reserve Bank of Chicago
Community bankers frequently ask, “How are our perspectives and concerns heard and considered by regulatory agencies?” At the Federal Reserve, we have a unique answer to this question: the Community Depository Institutions Advisory Council (CDIAC).
In mid-June, Dorothy Savarese, chair and CEO of Cape Cod 5 and 2020 president of the national CDIAC; Ann Misback, secretary to the Federal Reserve Board; and Carmen Panacopoulos, senior business strategy manager for Regional and Community Outreach at the Federal Reserve Bank of Boston, met virtually with the author of this article for an informal and spirited conversation. They discussed the history and importance of the CDIAC, the respective roles they play in the Federal Reserve System, and their thoughts on issues such as the importance of diversity of thought and experience, as well as how the CDIAC process has adapted to address the COVID-19 pandemic.
The CDIAC has its roots in the long history of regular communication among the Federal Reserve Board and community depository institutions. In 1980, the Board established the Thrift Institutions Advisory Council (TIAC) to provide information and advice on the special needs and problems of savings and loan institutions, mutual savings banks, and credit unions. The TIAC operated until 2010, when former Governor Betsy Duke, who emphasized the importance of grassroots input to the Board, reimagined and revitalized the group by forming the CDIAC.
The CDIAC, which now operates under the oversight of Governor Michelle Bowman, provides direct communication between community depository institution stakeholders, the Reserve Bank presidents, and the Board. Each of the 12 Federal Reserve Banks (the Districts) maintains its own CDIAC, which is composed of executive officers from state-member, nonmember, and nationally chartered banks, as well as thrift institutions and credit unions. The Board selects one member from each District’s CDIACs to serve on the national CDIAC. The national CDIAC is currently led by Savarese, who is primarily responsible for facilitating the national meetings with the Board as well as ensuring concise and pertinent discussions around key risks to community banks, among other important duties. The local CDIACs meet with their respective Reserve Bank presidents, while the national CDIAC meets with the Board.
The composition of each CDIAC is critical to its effectiveness. “The Board has such wide-ranging responsibilities, so it is important that Board members hear from a diverse group of financial institutions,” said Misback. She added that the CDIAC is not restricted to expressing views on regulatory issues.
“The Board is getting a sense of what is happening in smaller institutions and economies through the CDIAC, and the diversity of the charters and institution size helps to ensure all business lines and specialties are discussed,” she said.
Panacopoulos said the First District’s selection process is three-fold: (1) maintaining relationships with depository institutions across the region, (2) obtaining a broad range of perspectives by ensuring that the District constituents are represented at the table, and (3) making sure that different perspectives are obtained through a diverse charter composition.
The Board and each of the Districts are strongly committed to diversity and inclusion, and this is seen in the diverse geographic, gender, and ethnic composition of the CDIAC membership, said Savarese. She said that, as a result, the Board hears broad perspectives that are representative of the Districts as a whole, rather than a subset of the diverse makeup.
“As someone who has traveled the country advocating for the value of diversity, it is heartening to see that this is both top-down and bottom-up, with a strong commitment from both the Board as well as the Districts,” Savarese said. “The outcomes are always better when you have divergent and different points of view.”
Panacopoulos noted that forming a CDIAC of community bank presidents and CEOs that is both racially and gender diverse can be difficult. “Incorporating diversity in terms of presidents and CEOs of color is challenging, as there are fewer candidates,” she said. “There is an increasing number of institutions in the First District that are led by women, so we always try to make sure that we are looking through the diversity lens when identifying potential council members.”
The CDIAC Process
The CDIAC draws from both leadership and on-the-ground perspectives to inform the Board of pertinent trends and risks to community banks and the customers they serve. Misback and her staff compile uniform agendas to guide discussions for the semiannual District CDIAC meetings. The agendas cover a range of topics, including local economic conditions, sector-by-sector lending trends, and regulatory issues. Each District CDIAC has nine to 12 members, who serve three-year terms. They meet at the Reserve Bank to discuss agenda items in depth.
“For the First District and national CDIACs, the selection process is really quite extraordinary,” Savarese said. “You get people who are deep thinkers and understand they’re not just representing their own organization, but their communities and industries as well.”
District CDIAC members often reach out to peer institutions and business heads to ensure they reflect the District’s array of perspectives to the council, Savarese said. “I don’t know how they keep doing it,” she said, “but it is clear that the Board and District staff stay in touch with the local institutions to find strong candidates.”
Each District appoints a CDIAC chair, typically that District’s member of the national CDIAC. The chair is responsible for facilitating the District meetings. National CDIAC members have their work cut out for them in Washington, D.C. The day before the scheduled meeting with the Board, the national president guides the CDIAC members through a structured session in which they consolidate District messages and arrange their comments for the discussion with the Governors. Accuracy and focus are essential to ensure the Governors hear the pertinent trends and emerging risks for community banks.
“I ask the members to infuse their comments with real-life anecdotes and facts drawn from their Districts,” Savarese said. “That really brings to life the economic forces impacting the communities and community banks across the country. It provides insight into the diversity of the various economies and types of charters.”
Savarese said the Board has made it clear it seeks the information and recommendations from the national council because it feels it’s uniquely positioned to offer information on current conditions and expected outcomes on business and supervisory issues. Savarese noted that Board members also intensely prepare for the meeting, and their questions are well informed and at the right level for community depository institutions.
“It’s great to see [Federal Reserve] Chair [Jerome] Powell and Governor [Lael] Brainard preparing and taking time to discuss the issues and trends,” Savarese said. “It’s also gratifying to see Governor Bowman, a former community banker and state regulator, as CDIAC’s oversight Governor. She really takes time to focus on the CDIAC and reaches out extensively to the community banking industry. All of the Governors show they are keenly interested in the answers, have thought about these areas, and that these are issues they want to probe.”
CDIAC meetings aren’t all talk either. There are actionable items that have been derived from the discussions between the Board and the national CDIAC.
Misback shared one example related to a Bank Secrecy Act/Anti-Money Laundering (BSA/AML) matter. The discussions from the CDIAC meeting were taken to the Board staff responsible for BSA/AML oversight and ultimately impacted supervisory guidance.
“This helped the CDIAC members see what can happen when they provide specific feedback that is actionable and constructive,” Misback said. “Their perspectives can be seen in policies and regulations.”
Although the CDIAC’s work is demanding, a highlight for the members is attending a reception with the Governors and members of the Board’s senior staff prior to the first meeting each year. Savarese said her time in Washington presents opportunities to create relationships with fellow council members, Governors, and Board staff.
“The experience is unique,” she said. “After the CDIAC meeting in the Board room, the Governors will come over and sit next to you for informal lunchtime conversation. They really go out of their way to be as gracious as anyone could possibly be. For many CDIAC members, this is their first time at the Board, or their first time interacting with someone in a policymaking position, and the Governors completely put people at ease.”
COVID-19 and CDIAC Agility
The COVID-19 pandemic hit the United States swiftly and without bias. The Board and Districts had to react quickly to obtain up-to-date information about the economy. The national meeting took place in early April 2020, so the CDIAC was essential in providing real-time information to the Board.
“The great value of this kind of council is that the members provide observations from the ground level,” Misback said. “They can share what’s happening, what they think is going to happen, and how their Districts and communities are being impacted. This was invaluable information for the Board and was one of the first organized advisory council meetings the Board held after the pandemic started.”
Since the meeting agendas had already been set, and some Districts had completed their spring meetings, the Board and the Districts had to adjust quickly to ensure pertinent information was provided to the Governors. Misback and staff revised the agenda so the questions focused on a pandemic of completely unknown scope. The new agenda was redistributed to the District CDIACs, and the race was on to prepare for the meeting with the Governors.
Districts took up the initiative immediately and convened their local councils to gather information for the Board. This all happened at a time when community bank executives were also highly focused on the risk to their own institutions. However, all participants remained attentive to the duties of the CDIAC.
Savarese recalled that during the meeting in the First District, Reserve Bank President Eric Rosengren had to leave the meeting because of an urgent matter. He returned after only a short time and stayed through the conclusion of the meeting.
The national CDIAC meeting went on, albeit virtually. Rather than convening in the Marriner S. Eccles building as usual, the Governors, CDIAC members, and Board staff met from their home offices, living rooms, and anywhere else they could find privacy in a work-from-home environment. Savarese said the governors engaged in a thoughtful and helpful conversation.
“They paid rapt attention to everything that was being said,” she said. “Not only that, but they came in with the most pertinent and timely questions, that were complex in nature, and took a lot of dialogue to work through.”
“In the end, the Governors said the conversation had been revelatory and that, in fact, they had learned so much,” Savarese added. “Every CDIAC member took that meeting so seriously because they knew this was history-making and a moment for them to help. One of the things this meeting process showed was the nimbleness of the Board and District levels. That has been evident through all of their efforts to help rescue our economy through this crisis.”
Misback added that the Board is extremely grateful for the time and attention that CDIAC members devote to the process.
“We realize this is volunteer activity,” she said. “The April meeting was an example of tremendous public service on the part of the CDIAC members. They spent time and energy to bring information to the Board at an extremely challenging time for themselves and their institutions.”
National CDIAC President Dorothy Savarese on the CDIAC Experience
Savarese is the chair and CEO of Cape Cod 5, a $3.9 billion mutually owned and independent state-chartered savings bank on Cape Cod, Nantucket, and Martha’s Vineyard, and in southeastern Massachusetts. She served as chair of the American Bankers Association and on the FDIC Advisory Committee on Community Banking before joining the Boston Federal Reserve Bank’s CDIAC in 2018. She was selected as the District chair in 2019 and national president in 2020.
“(The council) has shared many things that I have taken back and implemented at my institution,” Savarese said. “The dialogue with the Board does give us insight into their thinking. Sometimes understanding the ‘why’ is really critical. In every way, it makes me think more broadly, understand ramifications, direction. It challenges me. I meet people that I think are some of the smartest people I have ever met, and I come home a better CEO.” She added, “Many of the former CDIAC members I speak to say the CDIAC experience was the highlight of their career. In my mind there is no question as to why.”
When asked what she would say if a peer called her to solicit advice on accepting a role for their District CDIAC, Savarese responded with an emphatic, “Jump on this opportunity!”
“Be humbled by being asked,” she said. “It is a rigorous selection process. Recognize you have an enormous opportunity to benefit your District, your country, and your fellow community depository institutions, but also realize this will be something you will get back so much more than you give. It is a huge opportunity, leap for it.”
For more information about the District CDIACs, visit their respective Reserve Bank websites. Information on the national CDIAC and historical records of the meetings are available on the Board’s website at https://www.federalreserve.gov/ under the “About the Fed” tab.Back to top