Number of FDIC-backed banks fall to record lows
Recent FDIC data indicates that the number of federally insured banks and financial institutions has dipped below 7,000 for the first time since the Great Depression. At the end of September, only 6,891 banks have such standing, with analysts predicting that number to fall below 5,000 before 2025.
While consolidations have been reducing competition for years, the recent recession has accelerated this effect. Community banks, which have shouldered the lion’s share of this burden, are quick to point the finger at increased regulations that arose in the aftermath of the 2008-2009 financial crisis.
Their grievances are at least partly justified; Dodd-Frank instituted in excess of 400 new financial regulations and mandates and created the Consumer Financial Protection Bureau to enforce these new rules.
This is having an effect across nearly all financial institutions, which are having to hire more specialized staff such as attorneys and compliance officers to fulfill increased regulations. While larger institutions are able to absorb the costs, small banks – already feeling pressure from low interest rates – are seeing their profits nearly wiped out.
In a recent study, the Kansas City Federal Reserve surveyed 322 small banks and financial institutions. Over 90 percent said that they were struggling with Dodd-Frank compliance. Another study by the Minneapolis Federal Reserve estimates that bringing on only two additional bank employees would result in one-third of small banks operating at a loss.
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