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Thursday, September 25, 2014

Kansas City Fed Chief Calls for Community Bank Reg Relief

The Dodd-Frank Act, Basel III and other regulatory efforts aimed at the largest financial institutions have “impinged” on community banks, Federal Reserve Bank of Kansas City President Esther George said at a research conference. She singled out consumer compliance regulation as an example where “the pendulum has swung too far.”

George noted that “for banks that depend on relationship lending with customized terms and conditions, the regulations and the focus on identifying specific undesirable products seems to run counter to the requisite subjectivity that underlies the strengths of community bank lending.” She expressed concern about “a prosecutorial tone” in exams that forces “bank customers to prove they aren’t crooks and bankers to prove to regulators that they aren’t deceptive and unfair.”

The increasing complexity and prescriptiveness of rules also harm community banks through outsized compliance costs, even though they tend to have higher capital levels to begin with, George said. Meanwhile, she continued, “the substitution of rigid rules for examiner judgment has altered the supervisory process without adding value and has instead created higher costs of compliance.”

Read the speech.

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