Small, community banks require more regulatory relief, especially those that hold mortgage originations, so what can be done to reduce this burden?
St. Louis Federal Reserve President James Bullard discussed regulatory burden and what can be done to reduce this burden on community banks during a community banking conference hosted by the Federal Reserve Board and the Conference of State Bank Supervisors.
"More could be done. There appear to be some areas where we have sufficient information and experience to warrant additional action."
Bullard first took a look back at last year in his speech, highlighting the first of six meetings under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 occurring last December, the increased asset threshold for small bank holding companies and savings and loan holding companies from $500 million to $1 billion in April, and changes to call report requirements several weeks ago.
While these changes are a step in the right direction Bullard did note, "more could be done. There appear to be some areas where we have sufficient information and experience to warrant additional action."
Bullard suggests that regulators consider increasing the transaction value threshold under which a property requires an appraisal by a state-certified or licensed appraiser. The current limit has stood at $250,000 since 1994.
"Inflation adjustment alone suggests that the threshold in 2015 should be higher," Bullard explained. "We estimate the number of required appraisals would decline significantly."
Regulators should also consider mandatory escrow requirements for taxes and insurance premiums on mortgages that are held in a community bank's portfolio, Bullard said. Regulation Z recently experienced some "helpful" amendments, in that they provided a number of exemptions for certain types of loans made in rural or underserved areas.
"However, these exemptions do not go far enough," Bullard noted. "More can likely be done to address escrow requirements for community banks in locations that hold mortgages in portfolio."