Safeguards against another subprime crisis changed how banks do business

Sam Vallandingham won't say how he is restructuring his bank. That is a trade secret.

But he will say that he spent a lot of time and money coming up with the plan to spare his Barboursville, W.Va.-based First State Bank from the consequences of the Federal Reserve's capital rules.

First State Bank, headquartered near where West Virginia abuts Ohio and Kentucky, is not the kind of bank that the government blamed for causing the financial crisis. It's a small community bank, one that boasts that it kept low delinquency rates on its home loans throughout the crisis.

Nevertheless, Vallandingham, the bank's president and CEO, has had to map out an overhaul of the bank's business structure in order to keep it doing what he views as its core competency: Making and servicing home loans.

The change was forced, Vallandingham says, by the raft of new rules that the federal government imposed on home loans and servicing those loans, a response to the abuses of the subprime crisis. Those rules, meant to protect borrowers and prevent another crisis, are now playing out on the ground, and hitting some of the community banks that the government meant to protect.