Here's what has happened.
A knee-jerk reaction to the 2007 financial crisis, Dodd-Frank targeted all of those evil Wall Street financiers and banks who were alleged to have brought the nation, if not the entire globe, to the cliff of catastrophic economic collapse. However, the Dodd-Frank targeted all of the nation's banks, including small community banks which service the regular folks, small businesses, and farmers. How? Federal financial regulators have demanded that all banks comply with Dodd-Frank which, in turn, has added compliance costs to the cost of doing business.
Large banks can absorb those costs more easily than can community banks simply because they do more business and on a much grander scale. Those added costs are now driving small banks out of business. To wit: The share of the lending market as well as lending assets for loans and mortgages has fallen for community banks by 50% in the past two decades years.
Okay, that's 20 years, some might respond. What's that got to do with Dodd-Frank?
Consider these facts, courtesy of Marshall Lux and Robert Greene, fellows at the Mossavar-Rahmani Center for Business and Government at Harvard Business School:
- From the second quater of 2006 to the second quarter of 2010, the share of banking assets for community banks fell 6%. Since Dodd-Frank became law in 2010, the share of banking assets of community banks has declined 12%+.
- In 2012, it has been estimated that industry compliance costs after Dodd-Frank were $50B/year (12% of operating costs) with regulatory compliance as a share of operating expenses for small banks being 250% greater than for large banks.
- A 2014 study conducted by the Minneapolis Federal Reserve found that hiring due to those regulations at the smallest community banks has negatively impacted profitability. Now, 33% of those banks are unprofitable.
That's why small banks are consolidating and becoming bigger banks.
Here's the catch: For the regular folks, small business owners, and farmers, loan officers of large banks have less-detailed and specific knowledge of local conditions--especially the first-hand knowledge of the people who are seeking loans and mortgages--than do loan officers of community banks. As a result, borrowers who may have to struggle to secure a loan won't be able to because the larger banks will reject their applications. And they are!
That's really "caring" for the regular folks, isn't it?
Thank you, liberal Democrats Chris Dodd and Barney Frank. For the regular folks, it's a good thing you're no longer in Congress. Hopefully, your "reform" will soon be replaced or repealed.
Let the discussion begin...
To read the Lux and Greene report, click on the following link:
"The State and Fate of Community Banking."