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Community banks struggle in wake of Dodd-Frank regulations

The 2010 Dodd-Frank Act was intended to curb the risky financial activities of America’s largest institutions, but the legislation has made it more difficult for smaller community banks to thrive.

Community banks, many of which have worked to separate themselves from the missteps of America’s big banks, are exempt from many Dodd-Frank provisions. Without loan income, however, these institutions have struggled to continue offering free checking to customers.

“We’re getting closer to becoming a utility,” Larry Kuglar, a senior consultant for Georgia-based SouthCrest Financial, said, according to Chattanooga Times Free Press. “We’ve had to adjust our account offerings, because without loans, we’re having to produce revenue from other sources, including the customer.”

Many community banks are forced to draw revenue from other banking activities, charge fees for certain products or force customers to give up certain services.

“The uncertainty of how much it’s going to cost to operate based on Dodd-Frank regulations, taxation, new accounting standards that are now trickling down—it will affect all institutions,” Kuglar said, Chattanooga Times Free Press reports. “And somebody’s got to pay for it.”

While some institutions have been forced to discontinue certain services and implement new fees, other institutions have found new ways to cope in the face of increasing regulations.

Kasasa, a third-party checking account system, has brought back interest-bearing checking accounts and ATM-fee refunds. The system is designed to remove the burden from its partner banks and redistribute it among several institutions.

“Not only have we been able to maintain and keep a solid income for our bank and shareholders, but we’ve been able to keep a very competitive, low fee and high interest rate environment for our customers,” Barry Allan, an executive VP at Citizens State Bank, said, according to Chattanooga Times Free Press.

Citizens State Bank accounts are free, and customers receive bonuses if they participate in activities that prevent avoidable costs to the bank, including online banking and e-statements.

The Tennessee-based CapitalMark Bank has devised another different strategy that includes a heavy focus on business lending rather than consumer banking. Stefanie Crow, the executive VP and director of communications at CapitalMark, said that bankers provide one-on-one assistance to business owners and focus very little on individual marketing.

“It’s still too early to determine the long-term impact of Dodd-Frank and the Durbin Amendment,” Crowe said, adding that the bank has not competed in the consumer market because of the impending regulations, Chattanooga Times Free Press reports. “Although banks with less than $10 billion in assets are exempt from the debit card caps, the fear is they will be forced to adjust prices to remain competitive with the new pricing of the larger banks. Mindful of the regulatory changes, CapitalMark remains focused on our successful model.”

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