Tags: Dodd-Frank | community | banks | market

Harvard Study: Dodd-Frank Put Kibosh on Community Banks

By    |   Wednesday, 11 February 2015 11:21 AM

The 2010 Dodd-Frank financial reform law has helped accelerate the shrinkage of small banks, according to a study by Harvard researchers Marshall Lux and Robert Greene.

Community banks' share of U.S. banking assets and lending markets has dropped to 20 percent from more than 40 percent in 1994.

"Interestingly, we find that community banks emerged from the financial crisis with a market share 6 percent lower," Lux and Greene write.

"But since the second quarter of 2010 — around the time of the passage of the Dodd-Frank Act — their share . . . has declined at a rate almost double that between the second quarters of 2006 and 2010."

The implications could be harmful.

"Dodd-Frank's regulatory burdens are driving consolidation and could result in lending markets less able to serve core economic demands," Lux said, according to Forbes contributor Carrie Sheffield.

"Particularly troubling is community banks' declining market share in several key lending markets, their decline in small business lending volume and the disproportionate losses being realized by particularly small community banks," the duo writes.

Meanwhile, star bank analyst Dick Bove, vice president of equity research of Rafferty Capital, says the government, through its legal actions against big banks, is treating them like tobacco and asbestos companies.

"Asbestos and cigarette companies have gone to court on a continuous basis for years. They won some lawsuits. They lost some lawsuits. But you could expect that their legal costs every year would be relatively high," he tells CNBC.

"That's what you're seeing in the banking industry, and we've been saying this now for five years. Their legal costs will stay relatively high. There are still thousands of lawsuits which have to be gone through for each one of these big banks."

Bottom line: "I think the industry has been nationalized effectively," Bove states.

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The 2010 Dodd-Frank financial reform law has helped accelerate the shrinkage of small banks, according to a study by Harvard researchers Marshall Lux and Robert Greene.
Dodd-Frank, community, banks, market
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2015-21-11
Wednesday, 11 February 2015 11:21 AM
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