• Small Banks Struggle To Keep Up With Dodd-Frank

    The Dodd-Frank regulation was passed to protect taxpayers from another bailout by ending “too big to fail” institutions,” but its mass of rules and regulations have hit small community banks the hardest, a new Harvard University study shows.

    During the 2008 financial crisis, community banks — which provide 50 percent of America’s small business loans and 70 percent of agriculture loans — lost 6 percent of the market share. But since the Dodd Frank Wall Street Reform and Consumer Protection Act was passed in 2010, those small banks lost 12 percent of the market share, reported The Financial Times.

    Lux attributes much of that decline to the mass of expensive regulations placed on banks via Dodd Frank. Many of the banks faced with the new costs don’t have the money to keep up. So the law is actually encouraging and driving the consolidation of small banks into larger banks.

    “What if Dodd-Frank created a too-small-to-succeed problem in addition to the too-big-to-fail problem?” Said Harvard researcher Marshall Lux, former chief risk officer for consumer business at JP Morgan. “This research suggests it has.”

    Republicans in Congress are expected to continue fighting to roll back Dodd-Frank. (RELATED: Warren Accused Of Clinging To Dodd Frank At Expense Of Middle Class)

    The law has not yet been fully implemented. The American Action Forum estimates at least $10 billion in additional regulatory costs and 5 million additional paperwork burden hours are left before the law takes full effect.

    Community banks, defined as those with less than $10 billion in assets, now share 22 percent of the market, down from 40 percent in 1991. At the same time, America’s five biggest banks share of the market has risen from 17 percent to 41 percent.

    “It does seem like smaller institutions are the hardest hit,” Robert Greene, Lux’s research assistant, told the Financial Times. “There are economies of scale when dealing with regulation.”

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