All Banking Law, All in One Place. Bloomberg Law: Banking is the comprehensive research solution that powers your practice with access to integrated banking-related legal news, analysis,...
By Jeff Bater
Jan. 4 — Some small banks could face failure if the regulatory climate that emerged from the financial crisis isn't adjusted to better match risk with an institution's size, according to a paper by analysts at the Federal Reserve's Dallas branch.
More than five years since the Dodd-Frank Act was passed, smaller community banks are finding it increasingly tough to survive, due in part to the compliance costs needed to deal with the new regulations, the report said.
“In a regulatory environment that increasingly addresses big bank processes and tends to be ‘one size fits all,' smaller community banks appear to have a valid concern that their compliance burden is rising and the playing field is becoming more uneven,” the report said. “Regulatory oversight should match the level of risk an institution poses to the financial system and economy at large. Otherwise, more banks may become too small to succeed.”
The report cited that practically no new banks have entered the market since 2008. In remarks at an Federal Deposit Insurance Corporation event in November, the agency's chairman, Martin Gruenberg, acknowledged the environment in which to start a bank has been challenging, with net interest margins narrow and credit demand relatively modest. But he also said rising interest rates could lead to better conditions for startups (227 BBD, 11/25/15).
In 1992, community banks accounted for 64 percent of $4.6 trillion in total banking assets, the report said. By 2015, their market share had dropped to 19 percent of $15.9 trillion in total assets.
To illustrate the burden of regulations, the report used as an example the condition report banks that file regularly.
“In the 1950s, these reports (excluding instructions) were four-page filings,” the analysts said. “The reports for the smallest institutions grew to about 30 pages in the 1980s, about 40 pages in the 1990s and about 50 pages in the 2000s. Now, the Call Report is 84 pages.”
They wrote that while the costs incurred to banks to complete the added pages and items of call reports has not increased as dramatically, the burden to report more aspects about each institution has clearly gone up.
“Indeed, the increase in the page numbers and items per filing in Call Reports might be a meaningful proxy for the hard-to-measure, latent requirements that regulators have placed on smaller banks,” the Dallas Fed report said.
To contact the reporter on this story: Jeff Bater in Washington at email@example.com
To contact the editor responsible for this story: Seth Stern at firstname.lastname@example.org
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)