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WASHINGTON Sen. Mike Crapo, R-Idaho, unveiled legislation Friday that would require the banking agencies to review Dodd-Frank Act rules as part of a mandated process to assess the relevance of financial rules.
March 27 -
A top Democratic lawmaker said Wednesday that the compliance burdens placed on small and medium sized banks outweigh the risks they pose to the financial system.
March 25 -
Sen. Elizabeth Warren said community banks have continued to be profitable despite new rules under the Dodd-Frank Act while raising fresh warnings about unnecessary changes to the financial reform law in the guise of regulatory relief.
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There's nothing wrong with big banks gaining market share because they offer the products and services that customers want. But there's a problem when big banks can beat off their smaller rivals with a club fashioned by legislators and regulators.
February 23
There are many things to dislike about the Dodd-Frank Act. Causing the demise of community banks, however, is not one of them.
The current popular
But this narrative confuses correlation with causation. Yes, the number of community banks has dwindled since 2010. But this is no more proof of Dodd-Frank's ravages than increased community bank profits are proof of the law's success, as Sen. Elizabeth Warren
Other factors may well have contributed to the reduction in community banks. After all, the number of community banks with assets under $100 million
The number of larger community banks with assets between $100 million and $1 billion stayed comparatively stable in this period at roughly 3,800 in 1985, 4,300 in 2010 and 3,900 in 2014. The number of institutions with assets between $1 billion and $10 billion was also stable. Community banks of all sizes did, however, lose share to "too big to fail" banks formed during the big-bank merger waves of the 1990s and the early part of this century.
The decline in the population of small community banks can be attributed to two main factors. The first is the impact of economies of scale. Studies by the
The second and more recent factor in the decline in small community banks is the collapse in startup or de novo bank activity following the FDIC's 2009
De novo activity is cyclical, but it usually recovers following a recession. This time is different, and it's unlikely to improve while the FDIC's policy remains in place.
The best way to stabilize the number of small community banks is to increase de novo activity rather than to make changes to Dodd-Frank. This stance should by no means be taken as support for Dodd-Frank. It merely reflects the facts.
The extinction of community banks has been a concern in the financial industry ever since I entered banking more than thirty years ago. It's undoubtedly true that community banks above the $100 million asset threshold may be challenged by regulation, but they are unlikely to disappear with or without Dodd-Frank. That is why I am, and will continue to be, an investor in these institutions. Their unique local knowledge and relationship-based business model provide a valuable community service, and with the right scale they continue to earn attractive returns.
J.V. Rizzi is a banking industry consultant and investor. He is also an instructor at DePaul University Chicago.