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Thursday, April 3, 2014

WSJ: Compliance Costs Causing Small Banks to Sell

Although the Dodd-Frank Act was aimed at big banks, smaller banks have had to deal with the increased compliance costs, Michael Rapoport wrote in the Wall Street Journal. Because “costs don’t necessarily get lower as the banks get smaller,” the regulatory burden is proportionally larger for smaller banks. For a bank with only 20 employees, hiring a compliance professional can cause the bank to become unprofitable and force them to sell.

The moves come as a sluggish economic expansion limits banks' ability to expand enough to absorb higher costs. That is pushing some bank executives to look to sell. In all, there were 204 bank mergers in 2013 in which the target bank had less than $1 billion in assets…

Regulatory costs have pushed Chief Executive Wesley Sturges of Bank of Commerce—with $129 million in assets—to sell the bank this months to HomeTrust Bancshares. According to the Wall Street article, Bank of Commerce was “forced to boost spending on internal personnel and outside audit work to cope with added regulatory hurdles…” With only 20 employees, the increasing demands were too much for the bank.

The article further sites the recent merger of Minn.-based Great Northern Bank, which had $71 million in assets, into First American Bank of Hudson, Wis., in part because of the need to spread regulatory costs over a larger base of business.

Read the full WSJ article from our twitter feed, @ABARegPolicy, found on the right sidebar of the ABA Dodd-Frank Tracker homepage.

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