The Office of the Comptroller of the Currency on Tuesday issued a sweeping proposal designed to make community banks more competitive.
The plan, which could ease lending limits and capital requirements, is part of Comptroller John D. Hawke Jr.'s campaign to help banks with less than $1 billion of assets.
In an interview, Mr. Hawke said regulators ought to try and bolster community banks because they provide competition in an ever-shrinking industry.
"They don't need our help in the sense that they're floundering," he said. "We want to see them stay vibrant."
The agency's advance notice of proposed rulemaking also aims to streamline the applications process for new powers and additional branches.
The Comptroller's Office is also looking for ways to improve corporate governance procedures, which dictate how a bank is organized and operated. Finally, bankers were invited to suggest any other changes they think would ease the regulatory burden without imperiling safety and soundness.
Roughly 2,300 national banks would be covered by the new OCC rules. Together they hold $322 billion of assets, or 10% of the industry's total.
Bankers and trade group officials praised the comptroller's proposal.
"What's not to like?" said Karen Thomas, director of regulatory affairs at the Independent Community Bankers Association. "OCC recognizes that community banks are an important part of the financial landscape and their ability to compete should not be unduly hampered by regulatory burdens."
Mr. Hawke singled out lending limits as the most important potential change. National banks currently may not lend more than 15% of their capital to a single borrower. Another 10% may be lent if the credit is secured by collateral that can be easily sold.
That blocks smaller institutions from serving some local borrowers that larger banks are able to accommodate, Mr. Hawke said.
"That's the largest concern that I've seen expressed by the CEOs in the smaller banks," agreed Katie Winchester, president and chief executive officer of First Citizens National Bank, Dyersburg, Tenn.
Some states have already set more generous loan limits, putting national banks at a competitive disadvantage, according to Joe Williams, president and CEO of American Heritage Bank, El Reno, Okla.
As a state bank, American Heritage can lend up to 30% of its capital in one loan. "We've been able to accommodate our service area" through higher loan limits, he said.
On capital, the OCC does not propose any specific changes. Rather, the proposal asks "whether the differences in activities and levels and types of risks between large and community banks warrant" separate capital rules. Community bank capital rules could be "simpler," the OCC suggests.
But, in interviews, community bank CEOs were unfazed by existing capital requirements.
"In today's environment, capital is not a problem, given the strong earnings and the wonderful banking environment we've been privy to," Ms. Winchester said. "I don't have a problem with the current standards for measuring capital."
For her, relief from the Community Reinvestment Act is a top concern.
Tuesday's action is only one piece of the OCC's wide-ranging plan to address community banking issues, which Mr. Hawke unveiled in January and began to flesh out in March.
Within a month, the comptroller said, he will issue another proposal to make it easier for small banks to convert to S corporations, which enjoy tax advantages. And this summer the agency expects to hire its first director of community bank activities.
The OCC is also developing software that will help community bankers compare their institutions to others.