Challenges and opportunities for banks and consumers

Regulation going into effect Jan. 1, 2014 in regards to residential mortgage lending is limiting banks’ creativity and innovation on product offerings which in the end hurts consumers. If community banks feel it is only “safe” to offer “vanilla” products, then there won’t be as many options for consumers, especially those who may not qualify for a conventional 30-year fixed rate mortgage.

This was one of the key concerns voiced by 1,700 community bankers from 28 states participating in the recent “Community Banking in the 21st Century: Opportunities, Challenges and Perspectives” study released by the Federal Reserve and the Conference of State Bank Supervisors which echoes similar information released one year ago from the FDIC. Regulators need to make meaningful changes in the way agencies write rules as well as supervise banks so both are scaled to a bank’s activities and risk exposure rather than a one-size-fits-all approach.

Wisconsin’s research was coordinated by the state Department of Financial Institutions and Wisconsin banks were well represented at last week’s conference in St. Louis by Tom Spitz, founder and CEO of Settlers Bank in Windsor.

Currently, with over 260 banks based in the state, one of Wisconsin’s strengths is the diversity of the banking industry and the wide variety of products and value it offers to customers, their communities and the economy. Upcoming regulations potentially weaken this unique value of the banking industry as a whole.

For example, borrowers who are self-employed or whose income is derived primarily from commissions have difficulty qualifying for secondary market financing. In addition, the secondary market typically does not buy loans where the collateral securing the loan is very large in acreage.

Without a wide variety of options being offered to meet an individual’s specific needs and circumstances, consumers will find it more expensive and more challenging to borrow money from banks. This environment simply encourages non-regulated lenders to creep into the marketplace even more than what they are doing today which only hurts consumers in the long run.

While it is encouraging to see agencies like the Federal Reserve Board and FDIC actively seeking input from bankers on the issues directly affecting them and their customers, action is now required to maintain a strong, diverse banking industry.

Rose Oswald Poels is president and CEO of the Wisconsin Bankers Association.

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