Anyone who understood the way things really work knew that Dodd-Frank effects would be the opposite of its intent. A Harvard study has just shown the skeptics to be right. Too big to fail got bigger.
Interestingly, we find that community banks emerged from the financial crisis with a market share 6 percent lower, but since the second quarter of 2010 -- around the time of the passage of the Dodd-Frank Act -- their share of U.S. commercial banking assets has declined at a rate almost double that between the second quarters of 2006 and 2010. Particularly troubling is community banks' declining market share in several key lending markets, their decline in small business lending volume, and the disproportionate losses being realized by particularly small community banks.
...Professor Scott Shane of Case Western Reserve University recently noted in Bloomberg Businessweek that a complex web of regulatory burdens is impeding the ability of banks to lend to small businesses. And a recent Harvard Business School working paper coauthored by former U.S. Small Business Administrator Karen Mills reported that regulatory burdens may be impeding community banks' ability to participate in small business lending markets. In the late 2014 ICBA survey, 26 percent listed "regulatory burden" as a factor hindering consumer lending.
In addition, regulation -- as opposed to market forces -- appears to be an increasingly powerful force driving the growth of bank mergers. A May 2014 Wall Street Journal analysis of SNL Financial data found that community bank mergers increased 30 percent between May 2013 and May 2014. An October 2013 Bloomberg Businessweek story reported on banks engaging in "buying sprees" in response to regulatory pressures once they crossed the $10 billion threshold. A 2012 study found that community banks listed regulatory changes as the most common reason (38 percent) for M&A activity, and a 2013 study concluded that the top factor (35 percent) for information technology spending on infrastructure or compliance by community banks is "leveraging data more effectively for regulatory requirements." In 2011, community banks reported to the FDIC that the problem was not any single regulation, but rather the web of regulations in their totality. The result? The Mercatus Center survey reported that 83 percent of small banks believe compliance costs have increased at least 5 percent since the passage of Dodd-Frank.
...policymakers should be concerned that a critical component of the U.S. banking sector may be withering for the wrong reasons -- inappropriately designed regulation and inadequate regulatory coordination.
Dodd Franked Up
Interestingly, we find that community banks emerged from the financial crisis with a market share 6 percent lower, but since the second quarter of 2010 -- around the time of the passage of the Dodd-Frank Act -- their share of U.S. commercial banking assets has declined at a rate almost double that between the second quarters of 2006 and 2010. Particularly troubling is community banks' declining market share in several key lending markets, their decline in small business lending volume, and the disproportionate losses being realized by particularly small community banks.
...Professor Scott Shane of Case Western Reserve University recently noted in Bloomberg Businessweek that a complex web of regulatory burdens is impeding the ability of banks to lend to small businesses. And a recent Harvard Business School working paper coauthored by former U.S. Small Business Administrator Karen Mills reported that regulatory burdens may be impeding community banks' ability to participate in small business lending markets. In the late 2014 ICBA survey, 26 percent listed "regulatory burden" as a factor hindering consumer lending.
In addition, regulation -- as opposed to market forces -- appears to be an increasingly powerful force driving the growth of bank mergers. A May 2014 Wall Street Journal analysis of SNL Financial data found that community bank mergers increased 30 percent between May 2013 and May 2014. An October 2013 Bloomberg Businessweek story reported on banks engaging in "buying sprees" in response to regulatory pressures once they crossed the $10 billion threshold. A 2012 study found that community banks listed regulatory changes as the most common reason (38 percent) for M&A activity, and a 2013 study concluded that the top factor (35 percent) for information technology spending on infrastructure or compliance by community banks is "leveraging data more effectively for regulatory requirements." In 2011, community banks reported to the FDIC that the problem was not any single regulation, but rather the web of regulations in their totality. The result? The Mercatus Center survey reported that 83 percent of small banks believe compliance costs have increased at least 5 percent since the passage of Dodd-Frank.
...policymakers should be concerned that a critical component of the U.S. banking sector may be withering for the wrong reasons -- inappropriately designed regulation and inadequate regulatory coordination.
Dodd Franked Up
