While BB&T Chairman and CEO Kelly King might think there are too many banks in the United States, in fact there are not enough.

The decades-long consolidation of the U.S. banking system has led to too few community banks. Unfortunately, this trend is amplified in areas where scarce capital is needed the most. This isn’t good for the banking industry or consumers. It’s a public policy issue that must be dealt with before it’s too late, and the clock is ticking.

Here are the facts: there has been a decline in the number of U.S. banks from more than 18,000 to less than 5,800 in just three decades. Just 0.2% of U.S. banks hold more than two-thirds of industry assets. These megabanks create system-wide risks that pose a continued threat of taxpayer assistance should they again reach the brink of failure.

Here is the alternative: a diverse system of community banks. These local institutions operate a business model built on relationships and accountability to the customers they serve, not a transaction-based model designed to squeeze every last cent from their customers. (Wells Fargo’s “Eight is Great” cross-sales mantra infamously encouraged employees to sell customers eight of the megabank’s products, contributing to its phony-accounts scandal.)

Community banks are highly capitalized, so they’re better prepared than their larger competitors for economic crises. And as local institutions, they reinvest in their communities and channel loans to their depositors’ neighborhoods—promoting localized growth that radiates out to the broader economy. Community banks have been instrumental in helping the nation recover from the financial crisis and economic downturn, yet their numbers continue to dwindle, declining by roughly 1,500 since 2009. As the only physical banking presence in nearly one in five of the nation’s 3,000 counties, this lifeline to many American families is at risk.

The mere trickle of de novo banks entering the market exacerbates the problem. The number of bank applications has plummeted from more than 100 per year before the crisis to just a handful since 2009—posing tangible risks to financial services access and economic growth in communities overlooked by larger institutions.

Regulatory burden plays no small part in the growing consolidation. A new survey from the Federal Reserve and Conference of State Bank Supervisors found that community bank compliance costs have increased by nearly $1 billion in the past two years to roughly $5.4 billion, or 24% of community bank net income. Of the respondents who said they considered an acquisition offer in the past year, virtually all (96.7%) said regulatory costs were a very important, important or moderately important reason. Further, the Federal Reserve Bank of Richmond has found that regulatory costs play a key role in the recent dearth of applications to form new community banks.

Because U.S. financial services policy is part of the problem, it can also be part of the solution. A more tailored approach to capital requirements, mortgage rules, bank exams, data reporting, and other regulatory mandates would lift the burden on community banks and ease the pressure to exit the market. Now is the time for Congress and regulators to finally heed community banker calls for tiered regulations, which will preserve the economic foundation of local communities nationwide.

Community banking has contributed greatly to the nation’s growth and development over the past century and a half. It is synonymous with the American traditions of independence, self-reliance and entrepreneurship. The declining number of U.S. banks is not a trend to be encouraged, but a problem to be fixed to maintain a diverse and decentralized system that ensures continued access to financial services for all Americans.

Kelly King’s concern about a declining return on investment in the banking sector is an invalid reason to diminish banking competition at the expense of the consumers and small businesses who prosper from the local decision-making, local leadership and local investment that community banks provide. Not all banks are the same, and the community banking industry’s role in the banking sector should be encouraged, rather than diminished by megabank CEOs and financial services policy.

Camden R. Fine

Camden R. Fine

Camden R. Fine is president and CEO of Calvert Advisors LLC. He was previously president and CEO of the Independent Community Bankers of America.

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