Banks navigated covid, consolidation over past decade

Editor's Note: This is the second in a two-part series chronicling Editor at Large Jackie Hilgert's retrospective of the past 25 years in banking in this month's BankBeat magazine. The first part, which covered the time between 2000 and the Great Recession, was posted Dec. 3. .Acknowledgement that community banks are distinctIn late 2017, the Senate Banking Committee advanced a bill to tailor financial regulation to ease the burden on small banks. In essence, the bill recognized a full 10 years after Wall Street banks sullied all bankers’ reputations with the sub-prime lending crisis and subsequent recession, that community banks had not caused the crisis but had been there to help the nation heal. The bill received bipartisan support.Minnesota banker Noah Wilcox wrote an op-ed early in 2018 calling the proposed legislation “the best opportunity for Congress to support local communities by advancing meaningful reforms for the community banking sector.”The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, also known as the Crapo Bill after Sen. Mike Crapo (R-Idaho), or as S.2155, was signed on May 24. The law rolled back significant parts of Dodd-Frank by increasing the asset threshold for banks subject to stringent regulations like stress tests and the Volcker Rule, easing compliance burdens mainly for small and regional banks. It exempted lenders with assets under $10 billion from some requirements and loosened capital and reporting standards for smaller institutions.The Pandemic, PPP and remote everythingIn the second week of March 2020, bank lobbies shut their doors with rhythmic acceleration as the novel coronavirus, declared a pandemic by the World Health Organization on March 11, spread across the country. By the third week of March, bankers were adapting to a new normal that forced customer interactions to happen through glass barriers. Thank goodness for those ubiquitous drive-thru lanes! Also, hello Zoom ... (Karen, you’re muted!).Between the second and fourth weeks of March 2020, jobless claims skyrocketed. Banks across the region waived fees, and helped borrowers with loan modifications or loan payment deferrals. With real concerns emerging over the state of the economy, the chair of the Federal Reserve, Jerome Powell, donned his purple tie and went on NBC’s “Today Show” to reassure Americans the Fed had a handle on the financial system.Between mid-March and the end of May 2020, 40.8 million Americans filed jobless claims. On March 27, 2020, President Trump signed the CARES Act, which included the $349 billion Paycheck Protection Program, designed to keep small business payrolls intact. In conjunction with the SBA, banks would originate forgivable loans and earn fee income for their time and trouble. Businesses scrambled for access and banks struggled to meet the demand. The program was so popular, it exhausted its funding in roughly two weeks. A second round of funding was quickly authorized. By May 2021, roughly $800 billion was disbursed through the PPP program.Lawmakers authorized a third round for the PPP, but not until December, 2020. It’s worth noting that nearly 98 percent of PPP loans have been forgiven.The pandemic opened the door to a new management challenge: Remote employees. The human element of the pandemic came front and center at banks nationwide. Frontline staff showed up masked while remote staff connected virtually. How were banks to avoid the “us-versus-them” dynamic shaking out with their teams? How could banks keep people safe while respecting their privacy? What about employees whose kids were suddenly out of school or daycare? Banks turned to HR consultants, to law firms and to the Centers for Disease Control and Prevention for guidance. They socially distanced themselves and managed their fear. United Bankers’ Bank’s Bob Greening advised bankers facing remote-work challenges to cultivate a culture of trust and compassion.The year 2020 has become a demarcation in time. Normal occurred before the pandemic; “new normal” came after, with its preponderance of empty storefronts and half-vacant office buildings, rising inflation, and razor thin net interest margins.An industry in fluxAt year-end 2019, there were 4,526 FDIC-insured commercial banks operating in the United States. That’s a loss of just more than 4,000 banks in 20 years’ time. Bank failures accounted for 544 of those losses.In the post Great Recession years, bank failures dwindled year-over-year, to single digits in the year prior to the pandemic. In 2022, no banks failed in the United States. In March 2023, the $203 billion Silicon Valley Bank failed, the largest bank to go under since Washington Mutual in 2008. Two days later, the $110 billion Signature Bank failed. For those of us old enough to have lived through stuff (e.g., the worst years of the modern banking era), we could hear Yogi Berra barking, “déjà vu all over again.”.Following these collapses, the FDIC lifted its $250,000 insurance limit on deposits to prevent runs at other banks. Treasury Secretary Janet Yellen said the government was willing to expand FDIC insurance to banks in distress (e.g., systemically important banks; translation: not small community banks), which had the effect of sucking deposits out of community banks and funneling them into larger institutions.Community bankers quickly took to their phones to reassure large deposit customers and, in some cases, to add those accounts to deposit sweep services to mitigate risk.When deposit insurance limits rose to $250,000 after Dodd-Frank, that was supposed to close the discussion on too-big-to-fail banks. What the bank failures of 2023 demonstrated was that TBTF has not been resolved. Current Treasury Secretary Scott Bessent said Dodd-Frank harmed community banks and failed in its mission to end TBTF, instead ushering in an era of some banks being too small to succeed.During the eight years prior to the Great Recession, de novo activity averaged 144 per year, resulting in more than 1,000 new banks. Those were dubbed the “go go” years, as investor groups tilled fertile ground to raise capital.Between 2009 and 2024, only 77 de novo applications were approved, or about five per year. Those were the “no go” years because start-up capital of $30 million or more, some 10 times what regulators asked for during the “go go” years, would be required to charter a bank. That’s a harder sell, especially if you want to organize as a Sub S bank.The net change in the number of banks over time that is not attributable to failures or de novos can be chalked up to mergers and acquisitions on page 21). The interest rate environment post-Great Recession slowed the pace of M&A deals as many banks worked through investment portfolio problems caused by spikes in interest rates after sitting near zero for some seven years. By now, many banks have put those issues behind them, and the industry is experiencing a resurgence of deals as buyers and sellers respond to pent-up demand. The reasons for M&A deals abound: Gaining access to new markets, achieving economies of scale, providing opportunities to attract and retain talent; gain resources to meet market demand; and solve the puzzle of owner and leadership succession.We have been told again and again and again that lack of a succession plan is the No. 1 reason a bank goes in search of M&A. And the clock is ticking on this issue. A survey conducted in 2024 revealed that 48 percent of bank CEOs were older than 61, and it’s not uncommon for bank directors to be even older.We’ve also reported that the No. 1 gauge for success in an M&A deal is finding a cultural fit. It’s been said again and again: Cultural misfits make for bad deals.As 2025 comes to an end, the “Art of the Deal” is back in power and that gives bankers all the right feels. Just two years earlier, President Joe Biden signed an executive order adding criteria for approving M&A applications while slowing the approval process. Nathan Stovall of S&P Global told bankers this fall that the Trump administration is very supportive of transactions, proving once again that the winds of change continue to blow.TIMELINEJune 2016: The Financial Accounting Standards Board announces a new accounting standard introducing the current expected credit loss, or CECL, methodology for estimating allowances for credit losses. The new standard replaces the previous "incurred loss" model by requiring companies to estimate and recognize expected credit losses over the entire contractual life of financial assets.May 2018: President Donald Trump signs the Economic Growth, Regulatory Relief, and Consumer Protection Act, providing regulatory relief to community banks.March 2020: The coronavirus is declared a pandemic and the nation locks down. President Trump declares a national emergency, which frees up federal resources to fight the economic consequences of shuttered businesses and out-of-work Americans. The Paycheck Protection Program is unveiled in an effort to stave off rising unemployment.July 2025: Part of President Trump’s “One Big Beautiful Bill” is inclusion of a modified version of “The ACRE Act,” which allows banks to exclude from federal income tax interest earned from new farm real estate loans, aquaculture loans, and home mortgages in small rural communities of 2,500 people or less.July 2025: The GENIUS Act is signed into law. The Act establishes a regulatory framework for stablecoins, which are digital assets that an issuer must redeem for a fixed monetary value. The Act includes rules for how one can use stablecoins for payments and creates licensing requirements for stablecoin issuers.