Community banks that can be vital to many small businesses are hopeful about changes that the Trump administration and Congress have promised to legislation passed after the financial crisis that tightened supervision of Wall Street and the banking industry.
The number of small, local banks has declined since the Great Recession, a change that advocates feel was intensified by the paperwork the increased oversight entails. That's disappointing to many small business owners, who find it easier to form relationships with community bank branch managers and bankers than with those at regional or international banks. A community banker can advise them and steer business their way, for example, connecting a company owner with a new accountant.
"I need someone I can talk to who can understand the dynamics of a small business," says Ken Yager, who owns Newpoint Advisors, a Schaumburg, Illinois-based consulting firm. "With a big bank, you just disappear into an account number."
Jeff Bridgman remembers when his community bank would cover an overdraft for his antiques business, knowing he'd have funds in the account within a few days. He had a close relationship with the employees even as the bank went through several mergers over 15 years. But a staff turnover at the bank, now one of the more than 200 branches of Northwest Bank, left him without the attention and support he had in the past.
"I don't know how a bank could help me today, so I don't even consider them as a tool for growth," says Bridgman, whose eponymous company is located in York, Pennsylvania. "The bank for me today is just a place for money to sit for a couple of days while I write checks."
The U.S. had 5,521 community banks as of Sept. 30, down more than 25 percent from 7,442 at the end of 2008, when the banking crisis was still in its early days, according to the Independent Community Bankers Association, an industry group. The Federal Deposit Insurance Corp. has reported nearly 500 bank failures since 2009, most of them small banks. Others have merged to cut costs and stay in business, but many have struggled even as the economy has recovered.
Industry groups blame increased regulation, including the Dodd-Frank bill passed by Congress in 2010. Last week, President Donald Trump signed an executive order directing the Treasury secretary to review Dodd-Frank and its thousands of regulations. Changes in the law would have to be made by Congress, and House Financial Services Committee Chairman Jeb Hensarling of Texas has proposed modifying portions that affect smaller banks.
Dodd-Frank has created additional procedures and paperwork for all banks, but community banks have a harder time meeting the requirements because they have far smaller staffs than regional or national financial institutions, says Paul Merski, the ICBA's chief economist.
"You can't say which provision it is that's causing you concern. It's more like death by a thousand cuts," says Tim Zimmerman, president of Standard Bank, a Pittsburgh-area community bank with nine branches. "It's exhausting management and staff of community banks around the country."
The ICBA is advocating for several banking laws to be repealed or modified. Among them:
— Rules under the Home Mortgage Disclosure Act that sharply increased the amount of data banks must report to the government on each home mortgage application.
— Regulations still to take effect under Dodd-Frank that would require banks to collect and report information to the government about each small business loan application.
— Requirements on the amount of money community banks must hold in reserve to protect against losses from bad loans. Those requirements were put into effect after losses at the nation's biggest financial institutions threatened the world banking system.
The changes were intended to protect against failures like Lehman Brothers in 2008, and community banks don't pose a similar threat, the ICBA says. Community banks are likely to have several billions of dollars in assets each, according to the FDIC, while regional banks may have assets in the hundreds of billions of dollars and international banks like Bank of America and Wells Fargo have assets into the trillions. Small business advocates say they're feeling the reverberations.
"The overregulation has caused costs to go through the roof, many banks have been shut down and that has hit small businesses," says Javier Palomarez, president of the United States Hispanic Chamber of Commerce.
Yager, whose firm specializes in helping financially troubled small businesses, uses larger banks for tasks like money transfers, but depends on his community bank for most of his needs. He finds community bankers more willing than larger ones to try to help companies succeed.
"They'll ask questions like, what collateral do you have? Do you have a plan? What have you missed in your business that could do to help make things better?" he says.
In the meantime, struggling community banks are expected to continue merging. Standard, the Pittsburgh-area bank, is in the process of consolidating with another area community bank, Allegheny Valley Bancorp, which has eight branches.
"We can't afford to keep going the way we're going," Zimmerman says.
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