It has been a common theme among community bankers and their supporters for the past few years that the crushing regulatory burden in the post-Franken-Dodd era is hurting small banks' bottom lines. Since nay-sayers like the CFPB are allegedly fact-driven, perhaps they'll actually believe that the mantra has a basis in fact now that a university study supports it.
America’s small community banks are reeling under the compliance burdens of the Dodd-Frank Act and the vast majority of them are having to spend more money to comply with the law’s regulations, according to a study by George Mason University.
The study found that 83 percent of the nation’s community banks said that their compliance costs have increased by more than 5 percent because of Dodd-Frank.
Banks have had to hire new employees or outside personnel to help them comply with the law, said the study by the Mercatus Center at GWU.
“The increased regulatory burdens have led small banks to reconsider their product and service offerings, including considering whether to stop providing residential mortgages and overdraft protection. Many small bank customers, who will have difficulty locating convenient alternatives, will feel the indirect effects of Dodd-Frank,” the study said.
“The median number of compliance staff for the banks in our survey increased from one to two, and more than a quarter of respondents plan to add another compliance person.”
The study also cites Franken-Dodd's 850 pages of text and its evil-seed spawning of over 19,000 pages (and counting) of rules as ipso facto evidence of "crushing burden." On the other hand, I suppose bankers who actually read all that wouldn't be staying up all night with worry because the sheer ennui induced by that much sausage ogling would put even the most over-caffeinated banker into a coma.
The American Banker's Paul Davis thinks that crushing regulatory burden is taking a back seat to community banks worries about being beaten up by their bigger brethren.
Compliance remains a concern, but exemptions and last-minute changes to various rules and regulations have certainly helped to ease the sting at smaller institutions. Numerous attendees at the Independent Community Bankers of America's annual conference here [Honolulu] are expressing more frustration about the pressure they face from their bigger brethren.
Well, if you're going to fret about being stomped on for being tiny, you might as well tremble in Honolulu.
The article cites problems in competing on pricing, with bigger banks buying market share by offering rates that smaller banks can't match. However, it's my view that the economies of scale that benefit big banks are even more critical given the increased costs of compliance. Banks need to combine because it costs too much to operate to be profitable as a small banks, and a large chunk of those costs are compliance costs.
Regulatory burden is driving consolidation.