St Casimirs Mortgage Minute

An Unintended Consequence of Dodd-Frank: Fewer Small Banks

by John Mason

Big banks are now defending the 2010 Dodd-Frank law.

A recent editorial in the The Wall Street Journal said that: "JPMorgan's Jamie Dimon and Lloyd Blankfein of Goldman Sachs have urged against repeal, and other bank CEOs are also suggesting policy small-ball rather than wholesale reform."

Why should these banking leaders want change?

Larger banks adjusted a long time ago to the most recent comprehensive banking legislation in recent history.

As far as bigger banks were concerned, the Dodd-Frank law was out-of-date by the time it was passed.

The bigger banks don't stand still. Of course, they objected to the new laws and made a lot of noise about how the industry was being discriminated against. Yet these bigger banks had the knowledge and resources to leap ahead of the legislation to regulate them.

That said, one byproduct of the legislation was that many smaller banks were hurt by it. Dodd-Frank created 22,000 pages of regulations. A number of the smaller banks had to divert resources to address newly created compliance issues.

In the seven years following the ending of the Great Recession, the FDIC reported that the banking system lost between 100 and 150 commercial banks per year. This does not include the commercial banks that were lost during the Great Recession. From 2010 to 2014, the number of community banks declined 14%.

In addition, tighter regulations prevented new banks from entering into the commercial banking industry.

Read more here.