A Federal Reserve official preached to the choir on Thursday when she told a Madison audience that community banks are getting a raw deal from the increasing number of rules Congress has imposed on banks.

Esther George, president and chief executive of the Federal Reserve Bank of Kansas City, also said she is not convinced that the new regulations — designed to reduce the risk to the economy from banks seen as too big to fail — will accomplish that goal.

“My own view is that incentives have not changed in a way that would achieve the desired outcome of a safer, more competitive financial system,” George said in a speech to the Wisconsin Bankers Association. Meanwhile, she said, competitive and regulatory pressures on smaller, local banks “have only worsened.”

Nationwide, community banks have lost half their market share over the past 15 years, George said, while they are the institutions that still offer traditional bank services. “In fact, community banks make more than half of all small-business loans and extend credit in thousands of locales across the country, including rural areas,” she said.

But George said she does not think a two-tiered regulatory system — treating banks differently based on their size — is the answer; rather, an alternative such as separating banking from commerce should be considered.

Wisconsin Bankers Association president and CEO Rose Oswald Poels said she thinks there should be separate tiers, not based on a bank’s size but on its complexity. “Most community banks in Wisconsin are pretty plain vanilla; they have the same kinds of loan and deposit products. When you start to look at large banks, they’re doing a lot more things than traditional products,” she said in an interview.

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George also said the economic outlook for 2014 was “brighter” and predicted growth of 2.5 percent to 3 percent in the U.S. economy. “That would position us for one of the better years that we’ve seen in some time,” she said. She added, though, that she is concerned about the potential effect of the extended low interest rates.

Also emphasizing the positive was Bob Young, chief economist and deputy executive director of the American Farm Bureau Federation. “The last three years have been the three best years in U.S. agriculture — ever,” Young said.

Young predicted average prices of $4 per bushel for corn, $11 for soybeans and $7 for wheat, nationwide, and said, Wisconsin is in “not too bad a situation at this time and place.”

Young also gave a shout-out to Bob Cropp, a UW-Madison professor emeritus and well-known ag economist. Displaying a slide with the heading: “Never argue with Bob Cropp,” Young called him one of the top three dairy economists in the country.

Nearly 500 people attended the Bankers Association’s Economic Forecast Luncheon at the Alliant Energy Center.

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