Small banks are going out of business in droves and blaming new government regulations.
“We were a very soundly run, profitable, growing bank that provided great rates and services,” Ron Wheeling, chief executive of Shelter Financial Bank in Columbia, Mo., told the American Banker. “The government is putting us out of business.”
Shelter Insurance sold its banking unit, joining other insurance companies, such as MetLife, Allstate and Prudential, in bailing out of banking.
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The specific culprit, according to Shelter, is the Dodd-Frank Act requirement to provide two sets of financial statements, based on different accounting principles, to different regulators.
Keeping two sets of books would have cost $1 million a year, according to Wheeling.
The company was submitting financial statements to the Missouri state insurance regulator using statutory accounting principles used by insurers, according to the American Banker.
Then Dodd-Frank, passed in 2010, required it to give the Federal Reserve financial statements using the full-accrual generally accepted accounting principles (GAAP).
“The GAAP books would actually have lower capital than the statutory books,” Wheeling told American Banker, saying the older accounting method is more conservative. “We’re well capitalized by every measure in the regulatory tool kit and we had sterling asset quality.”
Many community banks fear they’ll struggle to meet the additional costs imposed by Dodd-Frank. Since regulatory costs are largely fixed, they are a larger burden for smaller banks. Many community banks could be acquired by larger banks, some experts predict.
“There is a certain size and scale that [banks] simply will have to get to in order to handle the new changes, and a little community bank that has one branch in one location in a small town will likely struggle to survive on its own,” Kim Barnes, chief operating officer of The Callaway Bank, told the Columbia Business Times.
Congress passed the Dodd-Frank Act to reign in large Wall Street banks that were blamed for the financial crisis. But small banks that did not engage in risky activities are suffering from the law’s regulatory burden, say community bank executives.
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