Fed's Powell: regulators ought not unduly burden community banks

WASHINGTON (Reuters) - Financial regulators must take care not to over-burden community banks with costly rules, which could unintentionally hinder lending activity that is vital for small business growth and job creation, a senior U.S. Federal Reserve official said on Thursday.

Fed Governor Jerome Powell, speaking at a community banking conference hosted by the St. Louis Federal Reserve, did not mention the outlook for the U.S. economy and monetary policy in his prepared remarks.

"Although both the traditional bank regulatory agencies and the Consumer Financial Protection Bureau are constrained, to some extent, by the language in the Dodd-Frank Act, all regulators should aim to ensure that we are not unduly rigid in our actions," he said.

The conference heard a series of papers examining the role played by the nation's many community banks, which are a traditionally important source of credit for small businesses, as well as the impact of Dodd-Frank legislation, designed to prevent a repeat of the 2007-2009 financial crisis.

Community banks are critical of the new rules and capital requirements, pointing out that it was the reckless behavior of massive banks on Wall Street which led to the financial meltdown, not the actions of small lenders on Main Street.

"We will continue to assess the overall effects of the new rules on the safety and soundness of community banks and to consider whether modifications to rules, or the ways in which we implement them, could achieve our safety and soundness aims with a lesser burden on this class of depository institutions," Powell said.

(Reporting by Alister Bull; Editing by Krista Hughes)