WASHINGTON—The Dodd-Frank overhaul financial law isn’t to blame for the decline in the number of community banks, according to a new report from the White House Council of Economic Advisers.
The Wall Street Journal noted that a “common complaint” of community bankers since passage of the Dodd-Frank Act has been that new regulations are squeezing their profits and hampering their ability to provide credit to Main Street, while also raising compliance costs. Credit unions and their trade associations have voiced the same complaints.
The White House report, however, argues that is not the case.
“There’s no evidence at all that Dodd-Frank has had a negative impact on this sector,” Jason Furman, chairman of the council, told The Wall Street Journal in an interview. As evidence, the White House report said it found that nearly every county has a bank office, and many Americans have the ability to use a community bank. It also said lending by the smallest banks has increased since 2010, the Journal reported.
“In all those respects, this sector has been really successful in the last six years, and so it’s hard to say Dodd-Frank caused a problem,” Furman was quoted as saying.
According to FDIC data reported by the Wall Street Journal, community banks have expanded their lending faster than larger financial firms. Lending by community banks was up 8.9%, year over year, at the end of the first quarter, outpacing the loan growth of larger banks.
The economic report points to longer-term trends in banking, including changes in branching patterns, that were playing out long before President Obama signed the law, according to the Wall Street Journal.
The Wall Street Journal, however, also noted that other studies, including a 2015 study by the GAO and a 2014 study by the Mercatus Center’s Small Bank Survey “found post-crisis regulations resulted in increased compliance costs and forced smaller-size institutions to reconsider what products and services they offered to bank customers.”