Smaller banks struggle with added labor costs related to compliance, while big banks spend millions to automate those decisions.
If some American banks are too big to fail, others have begun to feel they’re too small to succeed.
Just ask Joey Root, the president of First Liberty Bank in Oklahoma City with $310 million in assets. Root says small banks like his are being squeezed hard these days, even as the likes of JPMorgan Chase & Co. prosper. Small borrowers are losing out to big ones, too.
Community lenders like Root didn’t have much to do with the buildup of risks that triggered the 2008 crisis. And when the rules were tightened in response, as they had to be, there’s a case to be made that they took a disproportionate hit.
That argument makes a convenient stalking horse for the largest banks, now that the fight over regulation is back on. So it’s viewed with great suspicion by Democrats. President Donald Trump announced his intention to do a “ big number” on the Dodd-Frank Act, the most sweeping financial reform since the Great Depression, before an audience of small-business leaders.
They’re the kind of borrowers who have been shunted aside, the data show. Main Street-style business loans of $1 million or less grew by 5 percent in the 12 months through September. But that’s after several years of contraction, and the recovery came later, and slower, than the overall market. So proportionally they’ve fallen: to 20 percent of total business credit from 35 percent in 2004.
First Liberty lends to nail salons and plant nurseries. Its collateral might be a suite of marble sinks, or a yard full of seedlings. “You can’t factor that into a machine that is going to give you the correct score, and tell you if that is the correct loan,” Root said.
Smaller banks say they’re struggling with added labor costs after adding compliance staff, while big banks spend millions to automate those decisions.
Some of the problems for small banks and borrowers pre-date Dodd-Frank, and others have nothing to do with regulation: Economic growth has been mediocre, and many households and small businesses are cautious about borrowing after the shock of 2008.
Still, even the regulators in charge of the post-crisis tightening acknowledge there’s an issue that should be addressed.