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'Steady Improvement' For Community Banks: FDIC Head

Most U.S. community banks "are actually doing quite well" although they still face some challenges in this economy, the acting head of the Federal Deposit Insurance Corporation told CNBC Thursday.

"Trends for the banking system as a whole have been positive over the past year," Martin Gruenberg said from a community banking conference. "Bank failures are down. [The FDIC's list] of problem banks has started to come down.

"As we’ve had some economic recovery we have seen some steady improvement in the banking system, and that applies to community banks."

Gruenberg's comments echo Federal Reserve Chairman Ben Bernanke, who told the same conference earlier Thursday that while the economy has made it harder for community banks to make money, financial conditions as a whole are improving.

The 7,000-plus community banks in the U.S. provide a large part of small business lending, and in a lot of small towns and rural areas may be the only bank around. That makes their financial health vital.

"They really fill a very important role in our financial system," Gruenberg said. "There’s been some questions about the challenges they face, will they be able to meet them going forward."

Some of those longer-term challenges include raising capital, improving technology and attracting good people, he said, and an "improving economy will be very helpful to them."

Gruenberg wouldn't comment on a move sought by community banks for a five-year extension of federal insurance on transaction accounts that expires at the end of the year. He said "that's a legislative matter" that can only be decided by the U.S. Congress.

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