By: Michelle Patana
Bank consultants and executives have long argued that community banks and large financial institutions operate differently and should therefore not be subject to the same rules. To impose the same weighty and complex rules on smaller institutions as larger ones would place an undue burden on local banks and the millions of Americans they serve. While this logic applies to several different retail banking sectors, it may be especially true for the mortgage industry.
Community banks supply mortgages for millions of families. As communities continue to recover from the housing crisis and more buyers seek mortgage loans to stimulate the economy, some are calling for a new set of mortgage rules for community banks to make the process simpler and more accessible. Federal Reserve Board Governor Elizabeth Duke recently voiced her support for a separate set of mortgage rules that would prevent community banks from being hit with post-crisis reforms that may have a negative impact on their ability to lend.
Noting that community banks' contribution to the housing crisis was "disproportionately small," Duke said that she and Fed Chairman Ben Bernanke were concerned about the impact of new capital requirements would have on local banks and are urging policymakers to seek out solutions.
Creating a unique approach
"I think the data I have presented here support the first claim that their lending didn't cause the problem," Duke said, according to Bank Credit News. "But crafting regulations to address the real problems that occurred in subprime lending without creating punitive burdens on community banks may prove to be quite difficult … And I also believe that many community banks simply do not have the resources to appropriately comply with all of the pending regulatory changes pertaining to mortgage lending. Thus, the cost of solving the problem falls disproportionately on them."
Duke highlighted the positive contributions of community banks to the Community Bankers Symposium recently, and argued that she supports a one-size-fits-all approach to improving the mortgage lending sector.
While finalizing the terms of new reforms, such as Basel III, has been suspended indefinitely, the provisions are currently slated to apply to community banks when they are eventually discussed again. The Independent Community Bankers of America circulated a petition that received thousands of signatures from community banking executives opposing the regulations. Lawmakers said they would take the plight of community banks into consideration when reviewing solutions.