ST. LOUIS — Community banks merit more regulatory relief, particularly those that hold mortgage originations.
That was a key message from James Bullard, St. Louis Fed president, during a community banking conference here hosted by the Federal Reserve Board and the Conference of State Bank Supervisors.
After touting recent improvements such as an increased asset-size threshold for small bank holding companies and proposed changes to the call report, Bullard discussed ways regulators could ease burdens on smaller institutions.
"More could be done" on regulatory relief, he said. "There appear to be some areas where we have sufficient information and experience to warrant additional action."
Regulators could consider increasing the transaction-value threshold that determines when a property requires an appraisal by a state-chartered or licensed appraiser. The threshold has been $250,000 since 1994.
"Inflation adjustment alone suggests that the threshold … should be higher," Bullard said, without suggesting a new threshold amount. "We estimate that the number of required appraisals would decline significantly."
Regulators could also reconsider the issue of mandatory escrow requirements for taxes and insurance premiums on mortgages held in a community bank's portfolio, Bullard said.
Recent amendments to Reg Z "were helpful" by providing exemptions for certain types of loans made in rural and underserved markets, Bullard said.
"However, these exemptions do not go far enough," he said. "More can likely be done to address escrow requirements for community banks in locations that hold mortgages in portfolio."
Fed Chair Janet Yellen added during her time at the podium that "one size does not fit all" with bank regulation, drawing on her time at the San Francisco Fed.
"To effectively promote safety and soundness and ensure consumer compliance without creating undue regulatory burden, rules and supervisory approaches should be tailored to different types of institutions," Yellen said.
Yellen told bankers that the Fed recognizes the difficulties they have had in the years since the financial crisis.
"The significant improvement in the economy since then has helped communities and community banks," she said. "But I am well aware that the challenges for this sector continue, and my board colleagues understand this also."
The Fed "is committed to … ensuring that new and existing regulations are not unduly burdensome for community banks," Yellen said.