Pub. 4 2014-2015 Issue 6

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S May • June 2015 5 Bank Industry Is Not Growing or Expanding The number of banks that have opened since the passage of the Dodd-Frank Act can be counted on one finger. Washington has spent years since the financial panic of 2008 working to rein in the “big banks” with Dodd Frank and Basel III regulatory structure, but as a result, all banks are being stif led by regulatory framework lawmakers claimed wouldn’t materially affect smaller banks. The in- dustry as a whole is not growing or expanding. The Washington Post in late March reported that the U.S. is seeing an “unprecedented collapse” in bank openings, citing a new report by the Federal Reserve Bank of Rich- mond. The report points to regulatory compliance costs, low interest rates and falling loan demand as reasons for the sharp decline in new bank entry. That’s not news to us bankers. We have watched as banks closed andmerged, without new entrants taking their place. From 2011 to 2013, there were only four de novo banks. By way of comparison, there was an average of more than 100 annually between 2002 and 2008, the report shows. Since 2010, there have only been two new bank char- ters approved. One has been opened: Bird-in-Hand bank, located in rural Amish country in Pennsylvania; the other, Primary Bank, based in NewHampshire, expects to open in May or June depending on how soon it lines up additional funding of about $22 million and receives final approval. Bird-in-Hand bank has 16 employees with one of them dedicated solely to compliance. Management reportedly spent more than a month preparing for a recent exam and said 10 FDIC and state examiners spent 3 weeks at the institution. As I have traveled back toWashington D.C. over the past 3 years, both legislators and regulatory representatives have repeatedly noted their support for small banking institu- tions. They claim bank examiners have enough judgment and authority to evaluate the rules and regulations that apply to the size and complexity of the bank. The reality is many times they don't, as the Bank of Bird-in-Hand experienced. Meanwhile, regulators say conditions are improving for de novos. Panelists from the FDIC, OCC and Federal Reserve expressed opinions that the industry would see a resumption of new bank charters, when speaking during the American Bankers Association’s government relations summit in March. In response to a question about whether Primary Bank’s recent reception of conditional approval from the FDIC serves as a turning point for the industry, the trio said the improving economy and an increasing demand for bank- ing services were likely to create better conditions for new banks. The Federal Reserve of Richmond’s report, however, cites a very different factor which could precipitate new banks. “Banking scholars also have found that new entries are more likely when there are fewer regulatory restrictions,” the researchers found. “After the financial crisis, the number of new banking regulations increased with the passage of legislation such as the Dodd-Frank Act. Such regulations may be particularly burdensome for small banks that are just getting started.” The ABA and state associations have been calling on regulators to resume and foster the process of creating new banks, and the news about Primary Bank is heartening. GregHernandez, a spokesman for the FDIC, told the New Hampshire Union Leader, “New bank formation helps foster a vibrant community banking sector,” upon confirming the conditional approval for the bank. I think that’s something onwhichwe can all agree. I hope to see more of this kind of activity in the near future. In the meantime, your team at CBA will continue to push toward regulatory relief for banks and toward an economy and environment ripe for banks to grow, thrive and prosper.  Jeff Schmitz, Citywide Banks CBA 2014-2015 Chairman