Federal Reserve Chairman Ben Bernanke attempted to calm the nerves of community bankers earlier today with a pre-recorded message directed at the pending effects of the Dodd-Frank financial regulatory bill.
Appearing before the Independent Community Bankers of America convention in Nashville, Tennessee, Bernanke stressed that the bill’s main targets were the nation’s largest banks, the same financial institutions which became “too big to fail” in the run-up to Lehman Brothers’ 2008 collapse.
“Community bankers tell us repeatedly that they are concerned about the changing regulatory environment,” Bernanke said, according to a Peter Schroeder piece on The Hill. “It is important to emphasize that the Congress enacted the Dodd-Frank Act largely in response to the ‘too big to fail’ problem, and that most of its provisions … apply only, or principally, to the largest, most complex, and internationally active banks. These new standards are not meant to apply to, and clearly would not be appropriate for, community banks.”
Therefore, Bernanke said the Fed would offer a “clear distinction” between those large banks and community banks when enforcing the rules of Dodd-Frank, a bill that has received its fair share of criticisms from the mortgage and real estate community alike.
Chief among those disagreements is the Qualified Residential Mortgage, or QRM, rule, which would require 20 percent down payments on private loans; though FHA and GSE loans would be exempt – as long as the GSEs remained under receivership – any loan that did not meet the 20 percent requirement would be deemed a riskier loan, and originators would be forced to retain 5 percent in capital on the loan.
As we reported before, agents fear that the requirement would not only place difficulties on homebuyers, who would need to save considerable sums to afford the downpayment, but it would also be particularly taxing on community banks, which may not have the capital reserves to retain 5 percent on every non-qualified mortgage.
Also, commentators have spotlighted several of the bill’s rules and regulations that could stifle business for community banks.
Bernanke, though, was unwavering in his support to achieve a “delicate balance” between regulation and credit accessibility, especially when regarding the costs of the new regulations for community banks.