To maintain their place in the market and grow in the years ahead, community banks need to be freed of excessive controls coming out of Washington.
So argued the chairman of the House Financial Services Committee in open hearings looking at the challenges facing the country’s community banks.
“Community banks have suffered immensely as increased regulatory requirements force them to devote more and more resources to lawyers and check-the-box compliance programs, instead of serving their customers,” remarked Arkansas Republican Congressman French Hill, who serves as the chairman of the committee.
Hill said that the growth of community banks has in recent years been stymied, noting that only 82 new banks have been chartered nationally in the last 15 years, compared with the 190 that were chartered in just the year of 1990 alone.
Besides the decline in new charters, there has been a decline in actual existing banks, with Hill remarking that in his home state of Arkansas the number of such institutions has dropped from just over 250 three decades ago to 77 today.
Referencing the 2008 financial crisis that saw the collapse of nearly two dozen banks and the beginning of the Great Recession, Hill said that even though community banks did not contribute to that crisis, they have been “subjected to much of the same regulatory regime as the largest, most complex financial institutions.”
Now Congress, Hill suggested. should work to ease up on regulations coming out of the 2008 crisis, because those regulations, he said, are hampering the expansion of the industry. He additionally asserted that it may cost as much as $30 million today in initial capital to launch a bank, “making it nearly impossible to get started.”
Reaffirming the role of community banking nationally, Mitria Wilson Spotser, vice president of the Washington-based Center for Responsible Lending, noted that during the months of the Covid 19 economic shutdown, community banks accounted for nearly 20% of the Paycheck Protection Program’s total loan amount. Of that figure, nearly 87% of those loans went to minority-owned small businesses.
Testimony aired during the committee’s hearings specifically pushed for an easing of regulations leading to the formation of new banks, as well as repealing rules recently introduced by the Consumer Financial Protection Bureau putting a cap on overdraft fees.
February 6, 2025
By Garry Boulard
Photo courtesy of Unsplash
