The Mercatus Center at George Mason University recently published the results of a study of the effects of Dodd-Frank on small banks, defined as banks with less than $10 billion in assets each. The anonymous, web-based survey relied on responses from about 200 banks and was conducted between July 2013 and September 2013.
The study sought to analyze the impact of increased regulations on different areas of a small bank’s operations, including products and services offered. More than 80% of respondents indicated that their compliance costs had increased by more than 5% since Dodd-Frank. An overwhelming percentage of respondents (94.0%) responded that they would not be adding new products or services as a result. Respondents had already discontinued or were anticipating discontinuing residential mortgages, mortgage servicing, home equity lines of credit, overdraft protection, and credit cards.
It is clear from the responses to the Mercatus Center’s survey that although they are statutorily exempt from CFPB supervision, small banks are feeling the squeeze of Dodd-Frank. One commenter stated that, “any regulations applied to larger [financial institutions] always roll downhill, regardless of what congressional leaders say.”
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 Mercatus Center’s report concludes, “We expect that the small banks’ share of the residential mortgage business will shrink considerably. Small banks also have begun to cut back on overdraft protection.” The respondents to the Mercatus Center’s survey skewed towards banks that serve rural and small metropolitan areas, highlighting the disproportionate effect Dodd-Frank may have on small banks serving small communities, small businesses, and borrowers with unique needs. The study’s authors urge federal policymakers to support small financial institutions by “freeing them from regulatory burdens that impose costs without corresponding benefits.”