The Dodd-Frank Wall Street and Consumer Protection Act was intended to rein in large Wall Street banks that were implicated in the 2008 financial collapse. But that wasn’t the outcome.
Since its implementation in 2010, Dodd-Frank has wreaked havoc on small community banks because, unlike well-established large banks, they don’t have the resources to hire armies of compliance officers and specialists that are needed to deal with the mounds of banking regulations.
But this could be changing. U.S. Senator John Kennedy recently introduced the Reforming Finance for Local Economies Act—which would exempt community banks with less than $10 billion in assets from the bank-killing Dodd-Frank regulations. Since the passage of Dodd-Frank more than 1,700 U.S. banks have closed their doors.
And it’s not difficult to see why. The 2,300 page law levies massive financial burdens onto these already burdened financial institutions. More specifically, the St. Louis Federal Reserve estimates that banking regulations add an additional $4.5 billion of compliance costs onto small bank ledgers each year.
But financial institutions aren’t where the Dodd-Frank carnage stops. When the small banks aren’t doing well, neither do small businesses. In many cases, small community banks are the ones to give small businesses necessary start-up or expansion loans because they use alternative, localized measures of financial capability. In fact, almost 50 percent of small business loans are given by these community banks.
So goes community banks, so go small businesses.
Both small banks and businesses already have enough trouble getting by—let’s not make it more difficult by continuing to pile on unnecessary regulations that weren’t targeted at them to begin with.