In a letter Wednesday to Jason Furman, chairman of the President’s Council of Economic Advisers, ABA President and CEO Rob Nichols provided a more detailed response to claims in a CEA report that that the Dodd-Frank Act and other regulations have had little to no effect on community bank consolidation.
“Having thoroughly reviewed the report, I must admit to being baffled by your findings,” Nichols wrote. “A conversation with any community banker would dispel this forced conclusion. The thousands of new regulations that have been imposed on community banks is an enormous driver of decisions to sell to a larger bank.”
Nichols noted that the industry has consolidated substantially since Dodd-Frank was enacted, with 22 percent fewer banking charters since 2010. Dodd-Frank rules that affect all banks — such as the TILA-RESPA integrated disclosures — as well as rules intended for larger banks that get interpreted as “best practices” for community institutions have contributed to an expensive and excessive regulatory burden that can drive decisions to sell, Nichols explained.
He quoted a banker in the Northeast whose bank recently sold: “The effects of Dodd-Frank…resulted in financial projections showing substantial declines in revenues and increases in compliance costs, reaching the point that in a few short years an otherwise healthy community bank with strong capital and satisfactory earnings could no longer meet a number of financial benchmarks set by the regulators,” this banker told ABA. “These conclusions forced the bank to sell now when our shareholders and some of our employees would be less adversely affected.”
Nichols also challenged the CEA’s interpretation of the de novo drought. “Sadly, the forces that have acted to stop new bank charters are the same ones that have led to the dramatic consolidation of the banking industry — excessive, and complex regulations that are not tailored to the risks of specific institutions,” he said.
Nichols challenged Furman to ask “how prudent regulatory relief will contribute to economic growth,” adding that “each day another community bank leaves the field, it makes that community — and our economy — poorer.”