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Do you remember your first bank account? I do. I rolled quarters I found inside the couch until I had $25, and my father walked me down to the Centreville National Bank in our town.
Despite “National” in the name, this was our town’s bank. The farmers came in for loans. It was where my parents took out their first mortgage. You knew the tellers like they were family. They even knew my favorite lollipop. (It’s Green Apple, if you care.)
I sat down and the bank branch manager came over to me. He brought papers. Dad filled them out. Just like that, I had a savings account. It lasted till my first real job.
Over the years, I moved across the country, but when I came back the bank was gone. Replaced by a consolidated regional bank. It had been around since 1876, but my bank didn’t make it past the quarter mark of the new millennium.
There are a variety of reason why banks like my hometown one close. Community banks have shrunk since the 90s. However, no amount of modernity or technological advances have done as much damage to the local banks as the Dodd-Frank Act.
In the last two years, that law has been a favorite target for President Trump. You can assume he is upset on behalf of big banks. That’s a fair assumption. The truth, however, is community banks stand to gain more than big banks. If repealed, it could be a major lifeline to keep them open.
This is the year Trump needs to take an ax to the law. It will be a huge help across the country.
What’s the big deal with little banks?
If you have a Chase or PNC account, this article probably feels foreign. Why should you care about a bank that doesn’t have ATMs in your city?
The answer is: They are key cogs in the economic cycle because of what they do for the people in their communities.
So take my town for instance. It was roughly 2,400 people. We had your usual businesses: hardware stores, mom and pop shops, dry cleaner, etc. Most were not franchises.
How do they get started? How do they take out loans? If you got to a major bank, they have loan standards that do not change from city to city. Tthere is little wiggle room for small-town startups.
Small banks can consider the person, the company, and the role in the community, then lend. That money stays in the community. Small banks are a vital part of Main Street U.S.A. and millions of Americans need them.
Beyond the lending aspect, small town banks offer you, the consumer, big benefits. This article on small banks is an excellent Cliff’s Notes on community banks. Basically, small banks can offer better rates of return on deposits.
Small banks are in the hunt for consumers. Big banks are not. That’s why when you open a savings or checking account, you see a higher yield at community banks. Last check, 16 out of 20 of the banks with the highest yields of checking accounts are local. They want your business.
So look at community banks as the backbone of small-town America, but keep in mind they are powerful tools for your wallet too.
How Dodd-Frank is killing them and what can Trump do?
As I mentioned in the beginning, there are lots of reasons for the decline in community banks. However, since 2010, the number of new chartered local banks is in the single digits. In the first year of the recession it was more 180.
So what happened?
In 2010, Dodd-Frank was aimed at stopping a recession similar to 2008 from happening again. It forced regulations on banks to make sure that they loan at a standard rate. The creators of the bill felt it would protect from future economic crisis, as well as protect consumers.
No doubt it has done that.
However, it has the unintended consequence of forcing those same regulations for Chase onto banks like Centreville National Bank. There isn’t any distinction between the two. Even though one has millions of customers and more assets.
The cost of regulation for the banks has become unduly burdensome on the small banks. It makes it difficult for them to offer mortgages. So the solution is to consolidate. That’s not good either.
As community banks close, that offers fewer options for loans to consumers. President Trump’s Treasury Secretary, Steve Mnuchin, warned this could lead to a small market of banks. Then where would we be? There would be no incentive offer positive consumer loans.
Last year, Trump began the assault on Dodd-Frank. During that time, Sec. Mnunchin testified before Congress he would like to see banks with less than $10 billion in assets exempted from the rule. This is a good start. Force the “too big to fails” to comply, free up the smaller lenders.
There is also a strong belief that Dodd-Frank will be repealed across the board this year. Consumer advocates will scream foul. But is it the job of the government to keep you from biting off more than you can chew? Take responsibility.
While they are upset, rural regions of America may breathe a sigh of relief. Maybe somewhere out there is another young boy with several rolls of quarters going to open his first account. With any hope he’ll be making an investment in his community, not the corporate jungles of America.
Article last modified on January 18, 2018. Published by Debt.com, LLC . Mobile users may also access the AMP Version: The Devil in Dodd-Frank - AMP.
Article last modified on January 18, 2018. Published by Debt.com, LLC .