Community Banks Hurt By Dodd-Frank, Conservative AEI Paper Cautions

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According to a paper released by the American Enterprise Institute, the Dodd-Frank Act, which was originally designed to focus solely on the largest financial institutions, will hurt small banks as well.

"The paper - which follows a theme commonly expressed by bankers, conservative pundits and GOP lawmakers - cites congressional testimony from banking executives and other public resources in arguing the compliance costs and standardization of financial products likely to result from the law could injure a community banking sector that is not being blamed for the crisis," writes American Banker's Joe Adler.

"Although policymakers enacted Dodd-Frank to avoid too-big-to-fail situations, in reality, its effect is the opposite. The act will force greater asset consolidation in fewer megabanks by increasing the competitive advantage large banks have over smaller banks," Wake Forest University law professor Tanya Marsh and K&L Gates associate Joseph Norman wrote in the paper commissioned by AEI.

The paper further warns that the Dodd-Frank reform law could cause smaller financial institutions to be bulldozed by the costs of having to comply.

"If community banks are forced to merge, consolidate, or go out of business as a result of Dodd-Frank, one result will be an even greater concentration of assets on the books of the 'too-big-to-fail' banks," the paper said.

For the full piece see "Dodd-Frank Hurts Small Banks Too, AEI Paper Warns" (may require subscription).

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