Federal Reserve Gov. Elizabeth Duke urged community bankers on Tuesday to continue lending despite challenges created by compliance with a host of new Dodd-Frank regulations.

Bankers have argued that the regulations released by Dodd-Frank may force them to pull out of certain markets. Banks face several new rules for residential mortgages.

"I think it is unfortunate when I hear some bankers say that they will stop offering mortgages if they can't make them the same way that they always have," said Duke, in prepared remarks before the Southeastern Bank Management and Directors Conference at the University of George in Duluth. "While I certainly understand their frustration, I still believe that community bankers can respond within the new environment by creating products that are profitable and meet the needs of their customers, while still managing their interest rate and funding risks."

The Consumer Financial Protection Bureau excluded many small banks from the provisions of new servicing requirements. Duke, a former community banker, said such exceptions are "especially important" given that small banks are important lenders in the mortgage market.

"Yes, the regulatory environment is challenging and the economy remains weak in many areas," said Duke. "But all our research shows that with creative, engaged bankers and strong risk-management processes, community banks can continue to not only survive but to thrive."

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