River Valley Bank President and CEO Todd Nagel said one of his bank's fastest-growing departments is the regulatory and compliance department. It's something he'd like to see changed.
How current banking regulations affect community banks like River Valley was the focus of a Monday roundtable discussion between local bankers and Martin Gruenberg, the chairman of the U.S. Federal Deposit Insurance Corp. The meeting was held at River Valley Bank's administration offices in Wausau.
Gruenberg said the banking industry has experienced a "slow but gradual recovery" since the financial crisis of 2008 and 2009, with banks' capital and liquidity positions improving, and the industry "well-positioned" to respond to increasing credit demand.
But it hasn't translated into an immediate relaxing of industry regulations.
"As regulators we're going to try to strike a balance to let the banks do what they do and provide credit, and try to do that in a reasonable way, but obviously also going to make sure that it's done in a careful and safe and sound way as well," Gruenberg said.
Congressman Sean Duffy, who organized Monday's meeting, said he appreciates the FDIC's position, but said that the pendulum has swung too far the other way.
"We may have competing interests," said Duffy, a member of the House Financial Services Committee. "We want to make sure we have sound, stable lending. The chairman comes from a little different perspective after going through the crisis and all the stress that has been put on him and the FDIC team. Maybe they're a little more cautious than we'd like them to be right now."
Nagel said if there's one regulation he'd like to see changed, it's the mandatory appraisal requirements, which come into play for extending home equity lines of credit.
"If you use real estate as collateral on a loan, regulations require banks to repeatedly get a new evaluation every time a new lending decision is made," Nagel said.
Because of the recent decline in real estate values, property owners have less equity and less of a chance to secure a loan, Nagel said.
"So what happens is we get these new appraisals and we're finding out they don't qualify for a loan," Nagel said. "But we can give them a credit card, or another company can give them a credit card, which of course, is an unsecured obligation, and I would say puts your financial institution more at risk."
Capital requirements, which force banks to maintain a certain level of money in their companies, also hurt community banks, Nagel said.
"That's less money that we can leverage and then lend out to our neighbors," he said. "The true community bank should be taking deposits in their community and then lending them back out. That's the greatest cycle I know of."
Gruenberg said small banks are "critical" to the economy, citing an FDIC study that showed, over the past 30 years, community banks account for only about 14 percent of the banking assets in the United States but account for about 46 percent of all the loans made to small businesses and farms.
"The large banks actually don't do that kind of business," Gruenberg said. "So if we didn't have community banks to fill that very important niche in our banking system, it would have real consequences, not just for the financial system but for the economy as a whole."