Deregulation was supposed to help community banks, but instead it's helping to kill them. Public Banks could save them.

Sen. Mike Crapo, R-Idaho. Photo courtesy The Intercept

Sen. Mike Crapo, R-Idaho, chairman of the Senate Banking Committee, joined by Senate Majority Leader Mitch McConnell, R-Ky. Photo courtesy The Intercept.


The bank-deregulation bill that passed the House yesterday — despite public and regulator outcries — was sold as something rural community banks desperately needed to relieve overwhelming paperwork burdens and survive Wall Street's rapacious crush.

It does reduce reporting requirements and red tape, but according to David Dayen in The Intercept, the main effect of Congress's lobbyist-written bill to loosen the regulations on "mid-sized" banks has been to greenlight — well before the bill even passed into law — a new rush of consolidation that is already swallowing up many of the community banks left standing. This was indeed predicted by industry observers. The Crapo bill, oddly, did not look to the only state in the country with thriving community banks — North Dakota — to build upon their successful model: their Public Bank.

Dayen explains in his recent sobering article:

“Indeed, the past 30 years have witnessed a dramatic reduction in chartered banks, from 14,500 to fewer than 5,600. ‘If this pattern continues, we’ll only have Wall Street banks left,’ said Sen. Jon Tester, D-Mont., to Politico. ‘And Wall Street banks won’t serve rural America, they won’t serve Montana. … So, what will rural America do?’ ...

Dayen continues:

“Implicit in this argument is that the Crapo bill represents the only hope for small community banks to survive without being swallowed up by bigger competitors. By lowering the cost of regulatory compliance, smaller banks would be given a fighting chance, the story goes. But that theory is at odds with the analysis of virtually every industry observer who has spoken about the Crapo bill. …

The increased pool of cash-flush buyers should blunt the mild regulatory relief in the Crapo bill for smaller banks. …

The impacts of this could be severe. In 2017, small business lending in rural America was half of what it was in 2004, according to the Wall Street Journal. Disappearing banks play a huge role, eliminating the kinds of community relationships that kept rural small business loans flowing. Venture capital in rural communities is scarce, making the bank the only place to get a loan. And, increasingly, the banks are leaving.

It’s unlikely that banks trying to merge their way to rapid growth will stick around. 'One of the things we do a lot of these days is help investor groups buy a bank in a small town and move it to a larger metro area, where there’s a higher growth opportunity, and a quicker way to build assets,' said Brown. …

“In its report, FJ Capital Management estimated that the total number of chartered banks would decline by 50 percent over the next 10 to 15 years. That’s precisely the opposite of what the ringleaders of the Crapo bill on the Democratic side — Heitkamp, Tester, and Joe Donnelly of Indiana, all from predominantly rural states — hoped the bill would provoke. But they may have known who really wanted this legislation, if they looked into their own campaign finance filings.

[Read the full article]


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