How Are Small Banks Faring Under Dodd-Frank?

How Are Small Banks Faring Under Dodd-Frank?

This paper presents the results of the Mercatus Center’s Small Bank Survey, which include responses from approximately 200 banks across 41 states with less than $10 billion in assets each, serving mostly rural and small metropolitan markets. The initial analysis suggests that Dodd-Frank significantly affects small banks and their customers. A large majority 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. These costs include hiring new compliance personnel, increased reliance on outside compliance experts, additional resources allocated to compliance, and more time spent by noncompliance employees on compliance. The increased regulatory burdens have led small banks to reconsider their product and service offerings, including considering whether to stop providing residential mortgages and overdraft protection. Many small bank customers, who will have difficulty locating convenient alternatives, will feel the indirect effects of Dodd-Frank.

PRINCIPAL FINDINGS

Compliance costs. Small banks are spending more on compliance in the wake of Dodd-Frank. The median number of compliance staff for the banks in our survey increased from one to two, and more than a quarter of respondents plan to add another compliance person. More than eighty percent of respondents saw their compliance costs rise by more than five percent since 2010.

Concerns. Small banks are most concerned about the Bureau of Consumer Financial Protection and the new mortgage rules.

Consolidation. Small banks are responding by trimming their product lines and contemplating mergers with other banks. They are rethinking whether to offer residential mortgages and home equity lines of credit. Approximately twenty-five percent of the banks we surveyed are contemplating mergers.

Click here for the full survey analysis

Below is the presentation from the event, "How Will Dodd-Frank Affect the Future of Small Banks?"

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