The number of community banks—small financial institutions that are locally owned and operated—has significantly declined over the past 25 years, from more than 8,500 to around 4,000 today.
Banking experts have alluded to these companies’ various day-to-day business challenges, from the immense regulatory burden to high capital requirements and compliance costs.
“Community banks know their communities best, and research shows that when they close their doors, Americans suffer,” House Financial Services Committee Chairman French Hill (R-Ark.) said at a recent hearing.
He said community banks remain critical engines for local economies, but, they’re disappearing.
During the hearing, industry leaders testified that many community banks enjoy deep roots in their communities and have survived economy-shattering systemic shocks over the years.
However, despite enduring various headwinds, many of these smaller outfits continue to struggle in today’s climate because of excessive red tape.
Rebecca Romero Rainey, the president and CEO of the Independent Community Bankers of America, said that she doubts many of the small institutions of yesteryear would have formed in the current regulatory climate.
One example she cited was the implementation of Section 1071 of the Dodd-Frank Act, an amendment that mandates financial institutions to collect, report, and maintain data on applications for credit for women or minority-owned businesses.
The objective is to ensure the enforcement of fair lending laws and facilitate an environment of opportunities for business and community development.
She says this has increased compliance costs and compromised the privacy of small business applicants.
Additionally, Rainey says she believes the government needs to enact regulatory policy proportionate to the risk represented by community banks.
Forty percent of community bank executives viewed the federal government as a “significant” threat to the banking industry, according to a 2024 What’s Going On In Banking study by Cornerstone Advisors.
Ken Wilcox, the former CEO of Silicon Valley Bank and former member of the board of directors of the Federal Reserve Bank of San Francisco, does not blame them for feeling the way they do.
While he views bank regulations as necessary, they “annoyed me to no end.”
“There were numerous times during my tenure as CEO when I felt that the regulation was unnecessary and problematic and, frankly, just getting in my way of success,” Wilcox told The Epoch Times.
By Andrew Moran
