The Good Economist September 2016 | Page 3

New bank formations are also at the lowest point in 75 years, and no new banks were opened in 2011 or 2012 - the first time in history the U.S. economy has gone without a startup lender. With so many mergers and no new bank formations, it could be only a matter of time before some customers and communities have their banking options limited.

However, those in support of financial reform argue the difficulties community banks are facing are being overstated. Community banks are exempt from considerable portions of Dodd-Frank. Thirteen out of fourteen of the most import Dodd-Frank rules relating to banks include exemption for small banks or are tailored to reduce the cost for small banks to comply. Economic evidence indicates that community banks are strong across a range of measures, according to an August issue briefing by the Council of Economic Advisors. With the exception of the smallest community banks, lending growth rates have increased since the financial crisis of 2010. Community banks have also increased their industry market share in a number of regions during the same period. Those in favor of Dodd-Frank suggest consolidation is a result of growth in the industry. The smallest community banks, those with assets totaling less than $100 million, pursued voluntary mergers and acquisitions to grow into larger community banks. A 2012 FDIC study of community banks showed that more than 80 percent of the banks that exited the industry between 1984 and 2011 left to become larger banks. Since 1994, the average number of branch offices has increased for community banks with assets between $100 million and $10 billion. The Council of Economic Advisors further suggest that at least 75 percent of the decline in new bank formation is unrelated to regulatory changes but to broader macroeconomic factors, such as interest rates. New banks are most impacted by the current market conditions because their loans are new and tied to recent, low interest rates, which are depressing profitability on traditional lending activities.

Whether the Dodd-Frank financial reforms are crippling community banks remains unsettled. But one fact is certain: The prospects for economic growth and job creation are inextricably linked to the prospects of community banks. This has forged a broad coalition of public leaders, even in a significantly notoriously divided Congress in favor of greater support for community banks. Many Senate Democrats, including Elizabeth Warren, support targeted regulatory changes that would benefit smaller lenders. And with the recent scandal further souring public opinion towards larger institutions, assistance for community banks could be on the horizon sooner than later.

SAleem Chapman

Policy & Advocacy Manager

The Good Economist 3