WASHINGTON Esther George, the president of the Federal Reserve Bank of Kansas City, said Wednesday that community banks are facing headwinds from low interest rates and the cost of complying with the Dodd-Frank Act.
Although policymakers made efforts to protect community banks from regulations intended for the largest, most systemic institutions, the trickle-down effect from the regulatory reform law has been deeply felt by smaller institutions, she said.
"We now have a regulatory environment that is weighing heavily on them," said George in a question-and-answer session following a speech before the Exchequer Club.
She expressed concern over the compliance costs facing thousands of community banks in her district, which she said are carrying a "disproportionate share" of the burden.
George's comments echoed recent remarks made by Fed Chair Janet Yellen and Fed Gov. Daniel Tarullo saying there needs to be proper calibration of rules to the risk profiles of particular institutions.
"We are taking a fresh look at how we supervise community banks and possible ways that supervision can be smarter, more nimble, and more effective," said Yellen in a speech at the Independent Community Bankers of America conference. "We know that a one-size-fits-all approach to supervision is often not appropriate."
Earlier this month, Tarullo went even further by suggesting making adjustments to better tailor regulatory requirements to a wide variety of institutions large and small in order to minimize the trickle-down effect caused by tougher regulations.
He said that smaller banks could be excluded from particular requirements like executive compensation restrictions and the Volcker Rule, which bans banks from taking risky bets with taxpayer money.
"Even where regulatory frameworks try to place a lesser burden on smaller banks, there may be some risk of 'supervisory trickle down,' whereby supervisors informally, and perhaps not wholly intentionally, create compliance expectations for smaller banks that resemble expectations created for larger institutions," said Tarullo.
Tarullo also suggested doubling the threshold at which a bank is considered systemically important from the $50 billion level established by Dodd-Frank.