Witnesses at HFS Hearing Urge Regulatory Reform for Community Banks

Witnesses before the House Financial Services Committee decried the decline of community banks, urged regulatory reform and argued that regulatory burdens are discouraging new community bank formations.

At a hearing titled: "Make Community Banking Great Again," Committee Chair French Hill pointed out that since 1999, the number of FDIC-insured banks dropped from over 8,500 to just over 4,000, with new bank formations nearly halted due to excessive regulatory burdens. Mr. Hill called for bipartisan cooperation to implement over 30 proposed reforms aimed at reducing regulatory obstacles and ensuring that "banks of all sizes remain competitive."

The following witnesses testified:

• Patrick J. Kennedy, Jr., Partner at Kennedy Sutherland, LLP, stated that the number of US banks declined nearly 30% in the past eight years, a trend he urged Congress to reverse. He emphasized that community banks are "engines in [] local economies, particularly in smaller rural communities." He argued that regulatory burdens, particularly from Dodd-Frank and Basel capital requirements, have burdened community banks, discouraging new entrants. He advocated for financial innovation, regulatory reform and a more cooperative dialogue between banks and regulators, stating that "public enforcement actions should be reserved for egregious situations."
• Rebeca Romero Rainey, President and CEO at Independent Community Bankers of America, emphasized that "our nation's prosperity depends" on community banks and called for a "transform[ation] of the regulatory environment" to support economic growth. Ms. Rainey criticized the CFPB's small business data collection rule, arguing it "compromise[s] the privacy of small business applicants" and increases lending costs. She urged raising the Bank Secrecy Act's currency transaction report threshold, calling the current $10,000 limit "significantly outdated." She advocated for more de novo bank charters, stating that regulatory burdens are discouraging new community bank formations, which are essential for local economies.

• Susannah Marshall, Commissioner at the Arkansas State Bank Department, warned that "we have lost nearly 2,000 community banks" over the past decade and that "[o]nly 62 de novo community banks were formed" in the same period. She emphasized that community banks fund "37% of all small loans to businesses and 63% of bank-originated agricultural loans nationwide." Ms. Marshall stated that excessive compliance costs create a "supervisory 'process tax' that places community banks at a competitive disadvantage." She urged Congress to review outdated regulatory thresholds, which she described as "costly regulatory 'cliffs'" that discourage growth. She called for reforms to deposit insurance and community bank funding sources, warning that current policies favor "too big to fail" institutions at the expense of local banks.