"The Pandemic Really Accelerated Trends": A Conversation about Banking


Tom Heintjes: Hello, and welcome to another episode of the Economy Matters podcast. I'm Tom Heintjes, managing editor of the Atlanta Fed's Economy Matters magazine. Thanks for joining me today. I think you'll be glad you did, because I'm sitting down with Doris Quiros, senior vice president and recently named head of the Bank's Supervision, Regulation, and Credit Division. The division recently held its annual Banking Outlook Conference, and I thought it would be interesting to sit down with Doris and talk about those discussions—you know, things that are on bankers' minds these days—and SRC's priorities for 2022. Doris, thanks so much for joining me today.

Doris Quiros: I'm really happy to be here, Tom.

Doris Quiros of the Atlanta Fed's Supervision, Regulation, and Credit Division. Photo by Ted Pio Roda

Doris Quiros of the Atlanta Fed's Supervision, Regulation, and Credit Division. Photo by Ted Pio Roda

Heintjes: Doris, before we dive in here, I wonder if you could give me and our listeners a quick overview of SRC and the bank portfolios we supervise. What would be your version of an elevator pitch on this topic?

Quiros: You know, Tom, Supervision, Regulation, and Credit—we're a really diverse division in the Bank. We have, of course, our supervision and regulation area. We process applications for institutions that are interested in mergers and acquisitions. We also have credit risk management, which is where our discount window is housed. Our district is a diverse district. Of course, we supervise institutions in Georgia, Florida, and Alabama—and then we also have portions of Tennessee, Mississippi, and Louisiana. What's unique about our district is that we have a broad range of financial institutions. We supervise commercial, regional, and large state member banks, in addition to our bank and thrift holding companies, international firms, and significant service providers, who play a really important part in the financial industry. With this broad range of institutions, it really requires us to have both a depth and a breadth of examination skills, and also really seasoned supervisory experience across all of our portfolios.

Heintjes: Speaking of being seasoned: Although you're not new to bank supervision, obviously, this was your first conference as the supervision division's chief. How different was that for you? How different is that role for you?

Quiros: I definitely sat in that conference with a different perspective. Before, I was listening and thinking about, "Wow, this is really interesting, listening to these speakers," probably from the area where I sat, which—I dealt with the people in processes and technologies. So I was really interested to hear what they were doing in their institutions. This time it was a bit different. My ear was really drawn to how our institution is being impacted during this environment—how they're responding to this digital age, And then also, thinking from a risk perspective, what do we need to be mindful of, and how can we best supervise our institutions during this time, with all the different risks that they're facing right now, to ensure that they're safe and sound?

Heintjes: As you were listening, what common themes or concerns did you hear among conference participants and attendees? What are other priorities did you hear from bankers during your first year as the head of SRC?

Quiros: In terms of themes, our theme for the conference this year was "Banking on Success in a Digital Era." The pandemic really accelerated trends in the banking industry, such as adoption of mobile banking, real-time payments, growth in our fintechs and other third-party service providers. We have new mediums of monetary exchange, like cryptocurrencies. And then of course, increased cybersecurity threats. So that's a big deal.

Heintjes: Always top of mind.

Quiros: Always. And now it's even more top of mind. It's the stuff that keeps us up at night. So as regulators, we've had to adapt our focus and our supervisory programs to really quickly keep pace with what's going on in the industry. We issued supervisory guidance, along with Ask the Fed sessions—so these were sessions where we dealt with topics that were near and dear to our banks, and we were able to answer questions early on, so that way we didn't implement new programs and processes that they weren't informed about. And then also, we were able to address their questions pretty quickly. We issued a white paper based on their feedback and a due diligence resource guide for community banks that were doing business with fintechs. Also, we're focusing on implementing our modernized Community Reinvestment Act to make sure that it works for everyone in 2022.

So, a lot of paradigm shifts that have occurred. If you think about this crisis versus the first financial crisis—the banks, they were focused on their financial shortcomings, basically. They didn't have sufficient capital, and they were really struggling. Compare that to 2020, where you had community banks—they had ample capital, which was great. Liquidity was ample as well at the start of the pandemic. And then they were providing lending and liquidity through the Paycheck Protection Program through our lending facilities in record numbers, so that allowed the small businesses to weather the storm—the ones that were able to get this lending to make their payroll—to survive during the worst parts of the pandemic. And financial institutions, they've remained resilient during this time, and flexible. That actually has been a success story in the middle of a digital era.

Heintjes: You mentioned real estate earlier, and I wanted to follow up on that. I was not able to attend the conference, but I know that Ali Wolf, the chief economist at Zonda, was the keynote speaker at the conference, and she spoke on the housing market—which is, of course, always a topic of great interest. Can you summarize some of her key observations, and what do you think the audience took away from her remarks?

Quiros: You know—and I think that we're hearing this across the board—there's still high demand, and a low inventory market in terms of housing. And she also showed some really interesting data on people coming into Atlanta, and where they're coming from. So while we have sticker shock right now, people coming from up north, California—they don't have sticker shock. They're saying, "Wow, this is a great value here." We have this struggle with not enough inventory and a lot of people coming into our district, so it was interesting to see the data around that. And she also said that lot inventory is where the key is to future homebuilding. Speaking from a Sixth District perspective, I know that we have a lot of time and investment put into land development at the start of the pandemic. These factors are going to be really important for housing pricing and stability in the future.

And real estate, as you said—that's an important asset class for our Sixth District banks, so we're going to continue to advance our real estate analytic capabilities, and then we'll bring in experts, like Ali at Zonda. But we also have been investing in-house and making sure we have that expertise. You know that we have Brian Bailey, who is a commercial real estate expert. We also have Domonic Purviance, who is a residential real estate expert, and we have our analytics teams that are working on tools, but they've also developed two timely monitoring tools that are available to the public. So, I hope that our listeners will visit our web page and check out those tools, along with articles and webinars and podcasts like this one, where Brian and Domonic offer their market and sector commentaries.

Heintjes: Yes, I'm an avid reader of the Home Ownership Affordability Monitor, which is one of those tools that's always very interesting. Doris, as we continue to emerge from the pandemic—fingers crossed!—do you have a sense of how optimistic or, conversely, how pessimistic bankers are about the near-term future? How has our approach to bank supervision and examinations changed since the pandemic, and do you see it evolving in the short and long term?

Quiros: Starting with where our bankers are, I would say one of the resources that I use is produced by our regulatory state agency partners through the Conference of State Bank Supervisors. Annually, the group surveys 500 community banks nationwide, and they identify the issues of relevance for community banks. A lot of the findings that are there mirror the conversations that I'm having. So, while operational efficiencies gleaned from the pandemic have greatly improved and driven profitability, their net interest margins are still fairly tight and under pressure—there's excess liquidity in the system. But bankers, they have expressed reticence in potential deposit runoff and capital deployment in a rising rate environment, so they're concerned about that. And they've had record earnings, but they're trying to figure out—how are they going to maintain those earnings in this next environment? So those are things that they're thinking about, things that they're optimistic about are possibilities that technology enables them to do. New technology will open doors to do new things, so I think they're optimistic about that. But they're guarded based on their lack of history, data ownership issues, and other factors. And of course, you can't have this conversation without bringing back cyber, and in the current environment, there's a heightened risk right now. So that's going to continue to be a top risk in the industry, as hackers just continue to get smarter and more aggressive in this space.

Heintjes: That's a podcast episode by itself.

Quiros: Oh, yes.

Heintjes: Which we will have to do sometime.

Quiros: And work from home, that posture—that actually exposes other vulnerabilities when it comes to that. These are things that are on their minds. In terms of our approach to supervision of the future, along with the banks we have gained efficiencies through virtual examinations. These old models of what we did in the past, of two-week, on-site examinations—those are being reevaluated. Really, even prepandemic, we were working to be more risk-focused, and tailor our examinations. Also, we were doing a lot more offsite. So, we're going to take our learnings and really think about, how should we continue to do our supervision in the future? Although I will say, the bankers—many of them—have told us they want to see us again. These messages that we have to give, sometimes it's much better to do that in person. So we're looking forward to doing that as well. There's an Ask the FedOff-site link program out there called "An Update on The Federal Reserve's Supervisory Posture for Small Banks as Pandemic Conditions Improve," so I would suggest that bankers listen to that Ask the Fed series as they come back.

Heintjes: Yes, that sounds tailor-made. Well, Doris, as we sit here it's early March. There's a lot of 2022 ahead of us. What are your expectations for the coming year? And what are your plans, your personal goals, for leading the division in this year? And, of course, beyond, but I'm thinking more short term. What are your personal goals for leading the SRC?

Quiros: In terms of SRC priorities, things that of course continue to be important themes in the industry are things that we're focused on. How do we do cybersecurity supervision? Operational resiliency—how do we make sure that we stay on top of that? Fintech partnerships, emerging technologies. Also, I was really happy when [Atlanta Fed] President Raphael Bostic talked about the economy and answered the banker's questions, so we'll continue to be bringing Raphael and other economists into our outreach efforts to address concerns. So those are definitely priorities in what we want to make sure that we do, and continue, with the banks. In terms of personal goals, one of my personal goals is to go out and meet our bankers. I haven't been in this role for very long.

Heintjes: Sounds ambitious right now!

Quiros: I know, and everything has been through calls, or virtually—so that's definitely one of my personal goals. We're looking at how soon can I get back on the road. So that way we can continue to maintain these relationships that we have with our bankers. So that's something in terms of the more external. Internally, one of my personal goals is, we have to continue to maintain a strong workforce. I talked about our really broad portfolio—well, we have to retain our talent. We need to ensure that we have diverse talent in an environment that is both equitable and inclusive. So that's top of mind with me—and we're all competing for talent, so that's really important. That's very high on my list, making sure that we continue to create this culture and environment that people want to stay in.

Heintjes: That's great. I hope to have you back on in the future to talk about banking conditions, and how this is all playing out, because there is so much to talk about here, and it always remains ever-changing and interesting. So, I hope you'll come back on.

Quiros: Absolutely.

Heintjes: And on that note, I'll bring this episode to a close. Doris, I want to thank you for being on today and sharing your time and insights with us. And I do look forward to having you back on in the future to talk about banking in the Southeast.

Quiros: Thanks for having me.

Heintjes: And that's all for this episode of the Economy Matters podcast. Again, I'm Tom Heintjes, managing editor of the Atlanta Fed's Economy Matters magazine. I hope you'll subscribe to the podcast to hear future episodes as they come out, and I also hope you'll check out Economy Matters magazine on our website at frbatlanta.org. Thanks for being with us today, and please come back for future episodes.