The Demise of Small Banks

Posted: November 14, 2012 in Banks
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President Barack Obama’s re-election will herald in the demise of thousands of smaller banks, analysts say.

The combination of loose monetary policies supported by the White House that have kept interest rates at rock-bottom levels and tough regulations on capital levels outlined under the Dodd-Frank law won’t allow banks to drum up enough business to survive.

Capital requirements have gone up too fast, and rates have gone too low. There’s no way out.”Other analysts agree.“It’s fairly clear that 50 percent of the banks in the U.S. need to be recapitalized,” said Dick Bove, a banking analyst at Rochdale Securities, Fortune added.

  • Emmett Daly, a principal at Sandler O’Neill who specializes in small banks, told an industry conference hosted by Mergermarket recently that the number of banks in the United States would shrink to a few hundred from more than 7,000 today.
  • Dodd-Frank consists of 30,000 pages of rules, who has the capability to understand what all these rules mean?
The Glass-Steagall Act of 1933, which prevented commercial banks and investment banks operating under one roof up until its repeal in 1999, was only 37 pages long.

Bank of all sizes are dealing with increasing regulations in the wake of the financial crisis, especially those outlined under the Dodd-Frank financial reform law. This burden is crushing.
Banks will spend more time worried about compliance and less time lending.

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