More small banks merge in face of increasing Dodd-Frank regulations

Terry McEvoy

More small and mid-sized banks are consolidating in the face of reduced profit margins, decreased loan demand, low interest rates and increased compliance costs associated with the 2010 Dodd-Frank Act.

Terry McEvoy, a banking analyst at Oppenheimer & Co., said the Fed has kept short-term interest rates low and lowered long-term interest rates, thereby lowering the revenue that banks like Hudson City rely on for profitability.

“Banking is becoming more and more about economies of scale to overcome the challenges posed to profitability from financial reform,” McEvoy said, according to The Washington Post.

Larger banks have more resources needed to hire accountants, lawyers and compliance specialists to deal with the increasing regulatory burden, while community banks have difficulty absorbing the new costs.

Banking analyst Bert Ely said that Dodd-Frank regulations place a heavier compliance burden on those institutions with less than $500 million in assets, adding that small banks will be especially burdened by increased capital requirements and those that require the banks to keep five percent of the loans they issue through mortgage-backed securities.

“People decry the growth of big banks, but that’s exactly where regulation is pushing things,” Ely said, The Washington Post reports. “It’s going to lead to a much more concentrated and ultimately less competitive banking industry.”

Until August, more than 100 bank deals have been announced, compared to 72 within the same period one year earlier.

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