Are Small Banks Deeply Effected by Dodd-Frank?

A study was recently published by The Mercatus Center at George Mason University on the effects of Dodd-Frank on small banks, defined as banks with less than $10 billion in assets each serving mostly rural and small metropolitan areas. The 96 question, web based survey relied on responses from about 200 banks across 41 states and was conducted between July 2013 and September 2013.  A large majority (65.6%) of respondents viewed Dodd-Frank as more burdensome than the Bank Secrecy Act, and the participating banks reported substantially increased compliance costs in the wake of new regulations.

The study sought to analyze the impact of increased regulations on different areas of a small bank’s operations, including products and services offered. 82.9% of respondents indicated that their compliance costs had increased by more than 5% since Dodd-Frank. 94% percent of the respondents stated hey would not be adding new products or services as a result.With one respondent stating, “We will not be adding any products, services or lines of business because of Dodd-Frank. It makes compliance too difficult and we will only be reducing the products offered. . . . These regulations have all but destroyed our market and will do the same to the banking industry as a whole if nothing is done to prevent further damage.” Respondents had already discontinued or were anticipating discontinuing residential mortgages, mortgage servicing, home equity lines of credit, overdraft protection, and credit cards.

The survey also stated that 71% of small banks surveyed are most concerned about the Bureau of Consumer Financial Protection and the new mortgage rules. According to the study, small banks have responded to the increased regulatory burdens by shrinking the products and services they offer, particularly in the mortgage sphere. The study’s authors urge federal policymakers to support small financial institutions by “freeing them from regulatory burdens that impose costs without corresponding benefits.”

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