Financial reform could lead to bank consolidations

Recent federal legislation meant to rein in some of the excesses that led to the financial crisis could have the side effect of encouraging mergers among small banks, Louisiana Bankers Association CEO Robert Taylor says. Small banks may consolidate in order to have the resources to pay for new compliance costs. “This bill will decrease bank revenues and increase bank costs,” Taylor says. “The very small banks are going to be the ones that are under the biggest pressure on making this all work.” Rajesh Narayanan, an associate professor of finance at LSU, agrees, saying smaller banks with fewer customers will now have a harder time passing along compliance costs, and may have to look at mergers to compete with the big banks. “You can hear all these compliance training firms licking their chops,” Narayanan says. —David Jacobs