WASHINGTON The U.S. Federal Reserve is considering ways to ease or tailor regulations impacting community banks, such as commercial real estate standards, as a way to boost their lending, a top Fed official said on Friday.
Community banks have complained that regulators are not sensitive enough to the impact rules aimed at large banks have on their businesses.
Federal Reserve Governor Elizabeth Duke said her agency is sympathetic to this complaint and is looking at ways to change guidelines regarding commercial real estate and how the quality of assets are rated as part of an effort to get community banks to lend more.
"I believe there is a real place for the customization and flexibility that community banks can exercise to meet the needs of local communities and small business customers," Duke said in remarks on Friday to the California Bankers Association.
Duke said regulators need to keep tough standards for construction loans given their risk and contribution to the failure of many small banks over the past few years.
She added, however, that regulators should be more flexible when it comes to loans that are secured by non-owner occupied commercial real estate, such as apartment buildings.
Duke also said that regulators need to move more quickly to allow small banks that have run into trouble to increase lending after they have taken steps to strengthen their balance sheets.
On the home mortgage lending front, Duke said regulators should make sure new rules meant to curtail risky behavior by Wall Street do not force community banks to ratchet back their lending.
"I think it would also be unfortunate if the laws and regulations put in place to require other lenders to adopt the same responsible practices long used by community banks are so complicated and expensive that they have the unintended effect of forcing some community banks to leave the market," she said.
Duke noted this issue is now mostly the concern of the new Consumer Financial Protection Bureau and urged community bankers to continue to voice their concerns.
(Reporting By Margaret Chadbourn and Dave Clarke; Editing by Chizu Nomiyama and Andrew Hay)