Federal Government Puts Big Hits on Small Banks

Federal Government Puts Big Hits on Small Banks
February 27, 2014

Two recent reports from the Mercatus Center at George Mason University show small banks taking big hits as a result of federal government policies.

"The Decline of US Small Banks (2000-2013)" shows “Both the number of US small banks and their share of US banking assets and domestic deposits declined substantially between 2000 and 2008. Simultaneously, the five largest US banks’ share of US banking assets and domestic deposits increased markedly,” write study authors Hester Pierce and Robert Greene. “Since the financial crisis, US banking assets and deposits have continued to consolidate in a handful of large banks.”

"How Are Small Banks Faring Under Dodd-Frank?" discusses a survey of hundreds of bankers by Mercatus Center scholars regarding the real-world impact of the Dodd-Frank law on small banks.

Principal Findings:

• Compliance costs: Small banks are spending more on compliance in the wake of Dodd-Frank. 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. More than eighty percent of respondents saw their compliance costs rise by more than five percent since 2010.

• Concerns: Small banks are most concerned about the Bureau of Consumer Financial Protection and the new mortgage rules.

• Consolidation: Small banks are responding by trimming their product lines and contemplating mergers with other banks. They are rethinking whether to offer residential mortgages and home equity lines of credit. Approximately 25 percent of the banks we surveyed are contemplating mergers.

For more go to Mercatus.org to view the full results and presentation.