The Dodd-Frank Act and Community Banks

By: Staci Baker

In my last post about the Dodd-Frank Act, I described the new regulatory bodies created by the Act. In this post, I will concentrate on how the Act will affect community banks.

The Dodd-Frank Act is over 3,000 pages of proposed and final rules and regulations set forth by the Consumer Financial Protection Bureau (CFPB). For any bank, managing such a massive amount of regulations is a challenge, but for a median-size bank with fewer employees, it can be overwhelming. The Act has far reaching unintended consequences for community banks.

 According to the American Bankers Association, there are five provisions that are particularly troubling for community banks:

1.       Risk retention

2.       Higher Capital Requirements and Narrower Qualifications for Capital

3.       SEC’s Municipal Advisors Rule

4.       Derivatives Rules

5.       Doubling Size of the Deposit Insurance Fund (DIF)

In order meet new regulatory requirements, community banks will need to hire additional compliance staff to review the new rules and regulations, as well as to ensure they are implemented on schedule. This means the additional cost of outside lawyers, which will affect resources available to the bank for staff, and for its customers and the community.

Community banks will also feel the burden of loosing interchange fee income. Small banks are exempt from the new rules; however, the market will follow the lowest priced product. Which will mean another loss of revenue for the banks.

As you can see, community banks will greatly be affected by the Dodd-Frank Act. The increased regulations will mean a loss of revenues, increased oversight, additional out-side staffing (less resources) and reporting requirements. If you are a community bank, how do you plan on overcoming some of these obstacles?