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Small banks and the aftermath of the financial crisis

An ATM at a community bank.

How have post-recession regulations affected small banks? The House committee on small business just met to discuss that and found some small banks took a big hit. Dodd-Frank, the Consumer Protection Act, and other regulation has meant banks have to have a certain amount of cash on hand, have to investigate certain kinds of deposits and many other rules. Many banks have had to bring in people to make sure they comply.

"Before Dodd Frank, an institution below $500 million had half of a person dealing with compliance," says Michael Moebs, an economist who advises banks. "Today it’s almost 4."

That additional labor brings additional cost. Moebs estimates it can be around $250,000. That kind of money isn’t a big deal for banks like Wells Fargo or Chase, but it is a big deal for smaller institutions.

"It could be the difference between a profitable year and a non-profitable year for a bank," says banking consultant Ken Thomas. 

In order to deal with this, many banks have started cutting costs and raising fees. And, Thomas says, many small banks are putting themselves up for sale and being snapped up by larger competitors.

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.
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