The results of a recent small-bank survey found small banks are facing rising compliance costs and finding it harder to serve customers due to the new regulations from the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The study was published through the Mercatus Center, a university-based research center at George Mason University.
The anonymous, online survey queried approximately 200 banks with $10 billion or less in assets. The survey banks revealed frustrations over the Dodd-Frank rollout.
One anonymous banker objected to "the maddening pace of illogical and unnecessary regulation (that would not) have done anything to prevent the 2008 collapse."
A concern of small banks was the pace and volume of the new regulations. The survey asked banks to compare Dodd-Frank's regulatory burden with the existing Bank Secrecy Act rules—widely perceived as compliance-intensive.
"More than 95 percent expect Dodd-Frank to be at least as burdensome," the report said.
The survey found the Consumer Financial Protection Bureau (CFPB) was also cited as a concern, with regulators providing additional anxiety for small banks. A third of reporting banks said they hired additional compliance or legal personnel.
Some banks polled quit offering residential mortgages altogether.
"Of the surveyed banks, nearly 6 percent already discontinued residential mortgages and an additional 10 percent anticipate doing so. Although those numbers may seem small in the scope of the national mortgage market, discontinuations will ripple through the communities these small banks serve," the report said.
As burdens increase on smaller banks, consolidation is expected in order to combat increases in cost that are more easily handled by larger institutions.
The report commented, "The five largest banks by assets now hold more than 40 percent of assets and deposits, which is much higher than the approximately 20 percent held in 2000. Of the surveyed banks, 94 percent expect further consolidation."
Increased regulations threaten small banks profitability, and in many ways, their very survival. The report noted that small banks serve an important purpose in the banking landscape.
"They serve small towns, rural communities, small businesses, and borrowers with unique needs and credit histories that don't fare well in unbending large-bank credit models. Small banks can make smart lending decisions based on information gleaned from their deep ties with their communities," the report said.