A flurry of bank mergers hit Louisiana in 2014, and a new Business Report feature says the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 helps explain why.
The law, passed in response to the financial crisis, changes capital requirements for banks, limits speculative investments by banks, and seeks to improve transparency and accountability of financial institutions, among other goals.
Community banks, which pride themselves on having deep knowledge of their local economies and customers, generally are not blamed for breaking the economy, and they were not the targets of Dodd-Frank. But they are not exempt from the law, and even now, politicians argue about how to soften the law’s impact on community banks without letting the big guys off the hook.
Relationship banking is more difficult when government rules, rather than each customer’s personal situation and history, dictate decisions, says Robert Taylor, CEO of the Louisiana Bankers Association.
“Much of the frustration Louisiana bankers feel stems from their inability to help their customers as they have in the past, because of regulations that force them to be more of a commodity that is no different from any other bank,” he adds.
Complying with new regulations can be burdensome for smaller banks, and revenue growth is difficult with low interest rates. Taylor isn’t sure why 2014 was such an active year for Louisiana bank mergers compared to 2013, but he speculates that an onslaught of new regulations is pushing banks toward a tipping point.
Rajesh Narayanan, associate professor of finance at LSU, says that while the market is not experiencing the “mega-mergers” that were happening before the recession, there’s been a recent uptick in mergers of banks with assets of less than $100 billion. Bigger banks can more easily absorb higher compliance costs.
“The industry is reorganizing in light of the new environment,” Narayanan says. “Everybody’s feeling the squeeze.”
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