USA TODAY International Edition
Community banks shrank after Great Recession
Tougher rules left fewer choices for consumers
For a while, it seemed federal regulators closed a bank every Friday.
So many banks fell and for essentially the same reason: bad loans. Regular closings became a ritual of the Great Recession — in Florida and across the country.
“When people didn’t repay their loans, that’s when our banks had to write off these loans and it hit their capital. Then you know what happened after that,” said Alex Sanchez, president and CEO of the Florida Bankers Association.
The Federal Deposit Insurance Corp. swooped down on the troubled lenders and seized their assets, putting them into the hands of other banks in waiting. To unsuspecting customers, the change seemed to happen overnight. From 2007 to 2012, more than 450 banks failed across the country, according to the FDIC.
The recession, which lasted from December 2007 to June 2009, spurred new financial regulations that led to more consolidation in the banking industry and discouraged the opening of banks, which must raise a lot more capital.
“The FDIC has basically gotten very tough across the board, and that makes it very difficult for banks to operate because of these regulatory burdens,” said Ken Thomas, an economist and banking consultant based in Miami.
Most of the new regulations came from the adoption of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Trump believes it’s too burdensome for all banks, especially smaller ones.
About 85% of banks that failed in the U.S. from 2008 to 2011 were smaller ones with assets of less than $1 billion, according to Face the Facts USA.
“Community banks play a vital role in our economy,” said Sanchez.
“We need community banks. Community banks give 50% of the smallbusiness loans in the United States, and small business is what our economies are based on here in our country.”