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Friday, March 6, 2015

Richmond Fed: Regulation May Hinder New Bank Startups

The overall regulatory burden on banks -- combined with increasingly stringent requirements for de novo banks -- may explain the decline in new bank startup activity over the past several years, researchers at the Federal Reserve Bank of Richmond said in a report yesterday.

“From 2011 through 2013, there were only four de novo banks total, compared to a yearly average of more than 100 from 2002 through 2008,” the researchers said. The authors discussed a number of potential contributing factors, including a weak economy, relatively low bank profitability, the persistently low interest rate over the past several years and the increasing mass of regulations banks must deal with.

“Banking scholars also have found that new entries are more likely when there are fewer regulatory restrictions,” they found. “After the financial crisis, the number of new banking regulations increased with the passage of legislation such as the Dodd-Frank Act. Such regulations may be particularly burdensome for small banks that are just getting started.”

Read the report.

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