Community banks need separate mortgage rules: Fed's Duke

WASHINGTON Fri Nov 9, 2012 12:35pm EST

Federal Reserve Board Governor Elizabeth Duke testifies at the House Financial Services Committee about housing foreclosures on Capitol Hill in Washington, September 17, 2008. REUTERS/Larry Downing

Federal Reserve Board Governor Elizabeth Duke testifies at the House Financial Services Committee about housing foreclosures on Capitol Hill in Washington, September 17, 2008.

Credit: Reuters/Larry Downing

WASHINGTON (Reuters) - Community banks may need a separate set of mortgage rules so that post-crisis reforms do not put them at an unfair disadvantage, Federal Reserve Board Governor Elizabeth Duke said on Friday.

"An argument can be made that it is appropriate to establish a separate, simpler regulatory structure to cover such lending," she told a group of community bankers.

"The regulators cannot, on their own, craft a new approach to regulating mortgage lending by community banks."

Duke said Fed officials including Chairman Ben Bernanke are concerned that new capital requirements could harm smaller financial institutions. Policymakers are trying hard to avoid such an outcome.

Appropriate policy should encourage community banks to expand mortgage lending rather than impede their ability to do so, Duke added.

"The contribution of community banks to mortgage lending abuses was disproportionately small," she said.

(Reporting By Pedro Nicolaci da Costa; Editing by Chizu Nomiyama)