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CNBC EXCLUSIVE: CNBC TRANSCRIPT: ACTING FDIC CHAIRMAN MARTIN GRUENBERG SITS DOWN WITH CNBC’S MARY THOMPSON TODAY ON “SQUAWK ON THE STREET”

When: Today, Thursday, February 16th

Where: CNBC’s “Squawk on the Street

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Acting FDIC Chairman Martin Gruenberg today, Thursday, February 16th, on CNBC’s “Squawk on the Street” (M-F, 9AM-12PM ET). All references must be sourced to CNBC.

Video: FDIC Chair on Future of Community Banking

MARY THOMPSON: GOOD MORNING TO YOU CARL, AS YOU SAID WE ARE HAVING AN EXCLUSIVE INTERVIEW RIGHT NOW WITH MARTY GRUENBERG WHO IS THE ACTING CHAIR OF THE FDIC. THANKS SO MUCH FOR JOINING US. YOU KNOW THE FIRST QUESTION I WANT TO ASK YOU THERE'S A REPORT OUT THIS MORNING THAT THE COMMUNITY BANKERS BASICALLY ARE ADVOCATING FOR A FIVE YEAR EXTENSION OF INSURANCE BEING PLACED ON TRANSACTION ACCOUNTS. IS THE FDIC ON BOARD WITH THIS?

MARTIN GRUENBERG: THAT WAS A MEASURE ENACTED BY THE CONGRESS TO PROVIDE UNLIMITED DEPOSIT INSURANCE FOR NONINTEREST BEARING TRANSACTION ACCOUNTS TO ASSIST BANKS WITH ATTRACTING LIQUIDITY DURING THE CRISIS. THAT AUTHORITY EXPIRES AT THE END OF THIS YEAR. SO THAT'S REALLY GOING TO BE A JUDGMENT FOR THE CONGRESS TO MAKE. IT'S A LEGISLATIVE MATTER. A STATUTORY MATTER THEY’RE GOING TO HAVE TO DECIDE. WE EXPECT CERTAINLY TO BE ASKED OUR YOU VIEWS ON IT. WE'RE ACTUALLY UNDERTAKING AN ANALYSIS NOW OF HOW THE PROGRAM IS WORKING AND THE DEMAND –

THOMPSON: SO YOU DON'T HAVE A VIEW TO SHARE WITH US NOW?

GRUENBERG: NOT TODAY THAT WE EXPECT TO BE ASKED BY THE CONGRESS AND WE'LL CERTAINLY BE RESPONSIVE WHEN THEY DO.

THOMPSON: NEXT QUESTION. THIS IS A CONFERENCE ABOUT THE FUTURE OF COMMUNITY BANKING, A FUTURE YOU SAY IS SOMEWHAT IN PERILED BY A MISPERCEPTION ABOUT COMMUNITY BANKS IN THE CURRENT ENVIRONMENT. WHAT IS THAT?

GRUENBERG: I WOULDN'T SAY IN PERILED COMMUNITY BANKS PLAY A VERY IMPORTANT ROLE IN OUR ECONOMY. THEY PROVIDE A LARGE PART OF THE SMALL BUSINESS LENDING THAT THE BANKING INDUSTRY PROVIDES. CRUCIALLY IN A LOT OF SMALL TOWNS AND RURAL COMMUNITIES, THEY'RE THE ONLY BANKS AROUND. SO THEY REALLY FILL A VERY IMPORTANT ROLE IN OUR FINANCIAL SYSTEM. THERE'S BEEN SOME QUESTIONS ABOUT THE CHALLENGES THEY FACE AND WHETHER THEY WILL BE ABLE TO MEET THEM GOING FORWARD. SINCE THE FDIC IS THE LEAD FEDERAL SUPERVISOR FOR THE MAJORITY OF THEM, WE FEEL A RESPONSIBILITY TO TRY TO IDENTIFY THE CHALLENGES GOING FORWARD AND BE OF ASSISTANCE IF WE CAN. THIS CONFERENCE IS THE STARRING POINT FOR A SERIES OF INITIATIVES WE'RE UNDERTAKING INCLUDING A RESEARCH EFFORT AS WELL AS LOOKING AT OUR SUPERVISION OF COMMUNITY BANKS TO SEE HOW WE CAN BE HELPFUL TO THEM AND ENSURE WE HAVE A STRONG COMMUNITY BANK SECTOR IN OUR FINANCIAL SYSTEM.

THOMPSON: EARLIER TODAY, FEDERAL RESERVE CHAIRMAN BEN BERNANKE SPOKE TO THE GROUP AND HE SAID THE CONDITION OF COMMUNITY BANKS IS IMPROVING. WHAT ARE YOU LOOKING AT AS FAR AS FAILURES GO? I KNOW THE NUMBER OF BANK FAILURES HAVE DECLINED SIGNIFICANTLY OVER THE LAST TWO YEARS. IS THIS A CONTINUATION, DO WE EXPECT A CONTINUATION THIS YEAR?

GRUENBERG: YES, WE DO ACTUALLY. THE TRENDS FOR THE BANKING SYSTEM AS A WHOLE HAVE BEEN POSITIVE OVER THE PAST YEAR. BANK FAILURES ARE DOWN. THE FDIC MAINTAINS A LIST OF PROBLEM BANKS. THAT LIST HAS ALSO STARTED TO COME DOWN. SO AS WE'VE HAD SOME ECONOMIC RECOVERY, WE REALLY HAVE SEEN SOME STEADY IMPROVEMENT IN THE BANKING SYSTEM. AND THAT APPLIES TO COMMUNITY BANKS AS WELL.

THOMPSON: JPMORGAN CEO JAMIE DIMON SAID RECENTLY YOU KNOW BIG BANKS ARE HAVING AN EASIER TIME LENDING THESE DAYS THEN SMALLER BANKS. IS THAT WHAT YOU'RE HEARING FROM THIS CONSTITUENCY?

GRUENBERG: I THINK COMMUNITY BANKS, MOST OF THEM AND WE HAVE NEARLY 7,000 COMMUNITY BANKS IN THE UNITED STATES, MOST OF THEM ARE ACTUALLY DOING QUITE WELL. THEY'RE WELL CAPITALIZED, THEY HAVE STRONGLY LIQUIDITY AND ARE MORE THAN HOLDING THEIR OWN. I THINK THE BIG CHALLENGE FOR THEM, A COUPLE THINGS. ONE IS THE UNDERLYING ECONOMY, SOME STRENGTHENING IN THE ECONOMY WOULD BE HELPFUL TO THEM, AND THEY CONFRONT SOME LONGER TERM CHALLENGES IN TERMS OF TECHNOLOGY, AND RAISING CAPITAL, ATTRACTING GOOD PEOPLE. THOSE ARE THE LONGER TERM ISSUES THAT WE WANT TO LOOK AT TO SEE IF WE CAN BE HELPFUL TO ASSURE THAT COMMUNITY BANKS ARE IN AN IMPORTANT PART OF OUR FINANCIAL SYSTEM GOING FORWARD.

THOMPSON: I WANT TO SWITCH TOPICS NOW FROM COMMUNITY BANKS TO YOUR ROLE AS A REGULATOR. SPECIFICALLY, ABOUT THE VOLCKER RULE. A 200 PAGE PROPOSAL THE FDIC WAS ONE OF THE FOUR REGULATORS THERE. SOME PEOPLE CALLED IT A MESS AND IT SUGGESTED A LACK OF COHESION BETWEEN THE FOUR REGULATORS WRITING IT. WOULD YOU AGREE WITH THAT? YES OR NO?

GRUENBERG: NO, I WOULDN'T ACTUALLY.

THOMPSON: WHY NOT?

GRUENBERG: I THINK THE REGULATORS ACTUALLY WORKED QUITE COOPERATIVELY IN DEVELOPING THE PROPOSED RULE MAKING, THE COMMENT PERIOD ON THAT PROPOSED RULE JUST CONCLUDED, SO WE'LL NOW BE REVIEWING THE COMMENTS. IT WAS A COLLABORATIVE EFFORT, THERE WAS AGREEMENT AMONG THE REGULATORS. IT WAS A LONG RULE, WE DID ASK A LOT OF QUESTIONS BECAUSE IT'S COMPLICATED. WE WANTED TO GET FEEDBACK. BUT I WOULD GENERALLY SAY THE REGULATORS HAVE WORKED WELL TOGETHER ON IT AND WE ANTICIPATE WORKING THROUGH TO A FINAL RULE MAKING ON THAT.

THOMPSON: DO YOU THINK IT WILL TAKE THE SAME FORM THAT IT HAS RIGHT NOW OR DO YOU THINK THAT THE COMMENTS THERE WERE A VARIETY AND LARGE NUMBER OF COMMENTS FROM IT, DO YOU SEE IT CHANGING IN ANY WAY?

GRUENBERG: THAT'S REALLY THE QUESTION. WE'RE JUST STARTING NOW. WE'LL BE LOOKING THROUGH THE COMMENTS. I THINK WE'LL REVIEW THEM VERY CAREFULLY. WE'VE GOTTEN A LOT OF COMMENTS. AND THEN WE'LL SEE HOW WE DECIDE TO PROCEED.

THOMPSON: I WANT TO THANK YOU FOR JOINING US TODAY. WE’VE BEEN SPEAKING WITH MARTY GRUENBERG WHO IS THE ACTING CHAIRMAN OF THE FDIC.

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