SAVING COMMUNITY BANKS COOPERATION AND PLANNED SUCCESSION The U.S. has undergone tremendous economic changes for more than 40 years. Those changes affect the middle class, and they also affect community banks. As income inequality has grown over the last 30–40 years, legislative changes have encouraged bank consolidation, and the number of community banks has decreased. According to an article by J.C. McKissen on the Inc. website, larger national banks either purchased these banks or merged with them. The article points out that the decrease in banks has made it harder for entrepreneurs to get the money they need. These budding entrepreneurs often depend on banks to smooth the inevitable bumps of growing a business while maintaining enough liquidity to pay the bills when they come due. The same is probably true for other customers, especially those in smaller communities. In September 2011, the U.S. had 7,436 banks. In September 2021, the number was 4,914 banks. There are more statistics. According to the samco-amc.com website, 1984 was a turning point. More than 10,000 community banks failed, merged or have been acquired since then. Most of those that remain have assets under $100 million. The banks that acquire them are usually about four times larger than the banks being acquired. Why are community banks going away? In one word: legislation. According to Oscar Perry Abello, in May 2020 on the nextcity.org website, there were 13,000-14,000 U.S. banks between the 1930s and the 1980s, but most were very small. In 1988, more than 12,000 banks had assets of as much as $300 million. Only 3,000 banks could say the same in 2020, but there were five times as many banks with $20 billion or more in assets. The problems started with deregulation in the 1980s. By 1990, 46 states made it easier for banks to operate across state lines. In 1994, President Clinton signed the RiegleNeal Interstate Banking and Branching Efficiency Act. The act removed federal restrictions on banking across state lines. In 1999, the Gramm-Leach-Bliley Act repealed the Glass-Steagall act that had separated commercial banking from investment banking, and big banks began merging with investment banks. The Great Recession motivated lawmakers to create additional rules. The Dodd-Frank Wall Street Reform and Consumer Protection Act are examples. Compliance has favored large banks because community bankers don’t have the same resources as their peers at larger banks. The new rules caused any bank with less than $50 million to become unprofitable. Banks can be a powerful tool within communities. However, big banks and community banks have different 11 Pub. 12 2023 Issue 1
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