"Federal Reserve Board Gov. Elizabeth Duke on Friday called for a two-tiered approach to regulating mortgage lending," writes American Banker's Joe Adler.

She points to balloon mortgages as an example of a product that is targeted by regulators, yet plays a traditional role in community bank lending. She argues that implementing Dodd-Frank to punishing smaller banks for abuse by other lenders would take a significant toll on the origination market.

"If the effect of a regulation is to make a traditional banking service so complicated or expensive that significant numbers of community banks believe they can no longer offer that service, it should raise red flags and spur policymakers to reassess whether the potential benefits of the regulation outweigh the potential loss of community banks' participation in that part of the market," said Duke at a recent symposium sponsored by regulatory agencies.

For the full piece see "Fed's Duke Advocates Separate Mortgage Regulation for Small Banks" (may require subscription).