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REGULATION NATION: Rural Communities Paying the Price

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Washington, June 9, 2016 | comments

Dodd-Frank Destroying Jobs, Communities in America’s Heartland

Today representatives from community banks in America’s heartland told a key Congressional subcommittee how government regulations like the Dodd-Frank Act are killing small businesses in rural communities. The witnesses shared their stories with the House Small Business Subcommittee on Economic Growth, Tax and Capital Access about how new red tape like Dodd-Frank has killed jobs and devastated communities in rural America over the past six years. 

“Across the country community banks are seeing the costs of complying with regulations soar, and the result has been less capital available for the main street shop looking to expand, for the entrepreneur looking to start a business, or for our neighbor hoping to purchase a new home,” explained Subcommittee on Economic Growth, Tax and Capital Access Chairman Tim Huelskamp (R-KS) in his opening remarks. “The impact of regulation on community banks is felt especially hard in our country’s rural areas, like my district in Kansas.”

“The rising cost of regulation is causing many small banks to merge with large entities that may not understand the local community, or causing some to shut their doors entirely,” Subcommittee Chairman Huelskamp added. “In rural towns without many other alternatives for access to capital, the results of top-down regulation can be devastating and impact the whole town. Home mortgage lending, small business lending, agricultural lending‒ all areas where community banks play a lead in providing capital‒ become much more difficult, and much more costly to consumers.”


“Rural banks will continue to serve their customers to the best of their abilities despite the many obstacles that have hurt their business models,” testified Shan Hanes of the First National Bank of Elkhart, Kansas. “Rural banks will compete with anyone on a level playing field and they have not backed down from such competition in the past. But when there is a combination of an unfair playing field and over burdensome regulations, all banks have great difficulty in surviving, not just competing. Banks are drivers of the economy, and this is especially true for rural banks.”

“Due to these factors in banks similar to mine, banks are exiting the mortgage lending market not due to credit decisions, but due to compliance and regulatory decisions,” Hanes stated.  “The mortgage lending rules were intended to address the credit risk side; however the compliance risk has become greater than the credit risk.”

“America’s hometown banks are resilient, and have found ways of meeting our customers’ needs in spite of the ups and downs of the economy,” said Roger Beverage of the Oklahoma Bankers Association. “But it is a job that has become much more difficult because of the avalanche of new rules, guidances and seemingly ever-changing expectations of the regulators. This new regulatory atmosphere—not the local economic conditions—is often the tipping point that drives small banks to merge. The fact remains that there are nearly 1,500 fewer banks today than there were 5 years ago—a trend that will continue until some rational changes are made that will provide some relief to America’s hometown banks.”

You can read full testimony from today’s hearing here and watch full video of today’s hearing here.


  • According to research by the Mercatus Center at George Mason University, community banks provide over 48 percent of small business loans and 44 percent of all farmland lending and all farm lending.


  • According to a study by the American Action Forum,  new rules under the Dodd-Frank Act have created over $20 billion in compliance costs, and over 60 million paperwork burden hours, with the promise of more still to come.


  • Regulatory burdens and compliance costs are generally greater for small businesses that have less revenue and a small employee base to spread over costs. Given this, small financial institutions such as community banks have been forced to bear a severe regulatory burden.
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