Efforts aimed at ending TBTF could contribute to problem

150px-US-FDIC-Logo.svgEfforts to eliminate “too big to fail” in the U.S. could actually be contributing to the problem as more institutions seek to consolidate and concentrate their operations.

Between 1984 and 2011, the number of banks with less than $25 million in assets fell by 96 percent, while the number of banks insured by the FDIC fell from 17,901 to 7,357. The industry share of banks with more than $25 billion in assets, however, increased from 27 percent to 80 percent, CNBC reports.

While many critics of big banks have said that the growing trend of consolidation can be attributed to deregulation, a recent study by the FDIC revealed that most banking participants attribute “the cumulative effects of regulatory requirements” to increased costs associated with more compliance staff.

Some critics of increased regulation have said that new rules have a particularly negative effect on smaller institutions, which often do not have the resources to handle regulatory compliance as many larger institutions do. A recent study by the Small Business Association found that compliance with environmental regulations costs 364 percent more for small firms than large firms, according to CNBC.

The House Financial Institutions Subcommittee recently examined the FDIC report and pointed to the statement by industry participants that the “cumulative” effects of regulation have burdened their institutions.

“The regulatory burden is also preventing new community banks from forming,” the subcommittee said, CNBC reports. “No new community bank charters have been granted since 2011, due in part to the regulatory burden of Dodd-Frank.”

Shelley Moore Capito, the chairman of the subcommittee, said that while the effect of new regulations is difficult to quantify, it is a worthwhile effort.

“I understand this is a difficult figure to quantify but we must keep up the discussion amongst policymakers, regulators and community bankers about ways to reduce this growing burden,” Capito said, according to CNBC. “We need to have safely run financial institutions in our local communities, but we must ensure that the costs of compliance do not outweigh the benefits and that regulations emanating from Washington can be handled by Main Street lenders.”

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