The Financial Services Institutions and Consumer Credit Subcommittee held a hearing this week to examine the impact of Dodd-Frank on the drop in new bank and credit union charters in recent years.
“Today, we took the first step at looking into why there are so few new banks and the barriers to entry for would-be community financial institutions. The historical data paints a very clear picture of what has happened since the passage of Dodd-Frank,” Rep. Blaine Luetkemeyer
(R-MO), subcommittee chairman, said.
From 2010 to 2016, Luetkemeyer said charter totals are now at historic lows, with only five new bank and 16 new credit union charters were granted. By comparison, 1,341 new banks and 75 new credit unions were chartered between 2000 and 2008.
While small banks and credit unions have become fewer, however, big banks have gotten bigger since Dodd-Frank became law.
“New financial institutions are a direct benefit to consumers and communities across the nation. The subcommittee will spend the next two years pursuing initiatives that promote financial choice and accessibility for all Americans,” Luetkemeyer said.
Ken Burgess, chairman, First Capital Bank of Texas said, the lack of new banks is rooted in excessive regulation.
“Some have argued that bank lending continues and therefore, there has been no impact of Dodd-Frank,” Burgess said. “Banks continue to lend even with the shackles that bind them. However, in the five years since Dodd-Frank was enacted, the pace of lending was half of what it was several years before the financial crisis. Some banks have stopped offering certain products altogether, such as mortgage and other consumer loans.”
Keith Stone, president and CEO of The Finest Federal Credit Union concurred, stating that regulatory relief is needed from legislators and regulators.
“Unfortunately, new credit unions like The Finest FCU are not being created due not only to the hurdles posed by initial start-up time and costs, but also the daunting over-regulation facing the credit union once its charter is granted. Many smaller credit unions are saying ‘enough is enough’ when it comes to the overregulation of the industry. The compliance requirements in a post-Dodd-Frank environment have grown to a tipping point where it is nearly impossible for many smaller institutions to survive, much less start from scratch. Credit unions want to continue to aid in the economic recovery, but are being stymied by this overregulation,” Stone said.
Patrick Kennedy, managing partner, Kennedy Sutherland LLP said that many banks exited the mortgage loan business because of the complexity and uncertainty surrounding Dodd Frank, the CFPB and related rulemaking.
“These added costs occasioned by Dodd Frank, Basel III and discretionary supervisory action significantly impaired existing financial institutions’ ability to provide financial services and products to consumers in the communities they serve,” Kennedy said.