I spent most of last week at a meeting of my counterparts from about 45 state bank trade associations across the country. This annual gathering gives us the opportunity to talk about issues facing bankers, debate various political scenarios and share best practices for the day-to-day operations of our associations.
This year we discussed the results of the recent elections, what they mean to our member banks, and how we should prepare and respond. There was unanimity of opinion that the election results assure that the Dodd-Frank Act (DFA) will be implemented, with few changes from its original adoption. This implementation includes the present structure and powers that accrue to the Consumer Financial Protection Bureau. It also includes serious mortgage rule changes that may reshape the entire mortgage industry. Will community banks be able to continue to provide residential mortgage financing in this new world? If so, will exceptions be made that recognize the unique characteristics of rural mortgage markets? If not, who will step in to provide credit to these unique rural markets?
Also at issue is what will happen to the community bank industry if DFA is fully implemented as passed. While much will rest upon exactly how those rules are written and enforced, the consensus from the attendees at this meeting was that DFA will drive more consolidation of the industry. My counterpart in one Western state recently met with a group of attorneys, accountants and community bank consultants who are involved in the merger and acquisition of banks. He posed this question to them: “What percentage of banks will sell between now and Dec. 31, 2014?” The shocking average of the answers — specific to this timeframe of just over two years — was a 21 percent reduction!
I do not think the reduction will be this high in Indiana, because we already have experienced, since 1980, an 80 percent reduction in banks, compared to the U.S. average of 67 percent. Thus the rest of the country, particularly the Plains states, have some catching up to do. However the point remains that a likely outcome of DFA and other restrictions and complicated regulations will be a significant reduction in the number of banks in the United States.
People who live in rural communities will likely suffer the most. Meantime those of us leading state bank trade associations will continue to present solutions to as many of these issues as we can. The mission of the Indiana Bankers Association is, “To advocate for and sustain an environment in which banks can succeed.” I assure you that we will continue to strive toward the accomplishment of our mission, thus allowing your shareholders, not regulators, to determine the operation of your bank.