Say Goodbye to Small Banks

Blog Post - Say Goodbye to Small Banks

(K.R.) In 2010, when Democrats passed the Dodd-Frank banking regulations following the financial crisis, almost no Republicans supported it. [1][2] They said it would kill small banks and make "too-big-to-fail" (TBTF) even worse by imposing expensive regulations that only big banks could afford.

And they weren't the only ones. Small banks warned against the legislation. “As a result of this volume and the new restrictions, many small banks are telling us they will simply have to sell out to larger institutions that have the staff to deal with the massive volume of new reports and rules,” American Bankers Association President Ed Yingling said before the bill passed. [3]

Turns out they were right. The law has been a gift to big banks. And why wouldn't it be? It was written by lobbyists for the largest banks and the politicians they donated to, who in turn used the sympathetic media and celebrities [9] to promote it, many of whom had no clue that they were actually supporting a law that would push community banks out of business and further concentrate banking assets into the hands of a few gigantic institutions.

How much has Dodd-Frank exacerbated the problem of "to-big-to-fail"? [4] In the six years before it passed, small banks with assets between $100M and $1B had increased in number by 9%. In the six years after passage of the law, the number of small banks has decreased by 13%.

And big banks have been the beneficiary, gobbling up their smaller competitors and increasing in number. In the six years before Dodd-Frank, the number of big banks (more than $15B in assets) had decreased by 11%. Since Dodd-Frank, the number of big banks has skyrocketed by 43%!

How are the candidates reacting to Dodd-Frank's impact? Hillary Clinton has been running from it. “What was meant to reign-in 'too big to fail' has actually fallen harder on [small banks],” Clinton acknowledged. [5] But she's also refused to take any actions to actually address TBTF. [6] It's likely her ties to Wall Street rule out any actions that would go against the investment banks that have funded her campaign. [7]

Donald Trump, on the other hand, has called for the law to be overhauled. “Dodd-Frank has made it impossible for bankers to function," he said. "It makes it very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs. And that has to stop.” Republicans in Congress have also pushed to ease the requirements on small and mid-sized banks. [8]

But with Trump down in the polls, and a corporatist with ties to Wall Street poised to take over the presidency, it seems the era of massive banks is just getting started.











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