A 'golden age' for community banks

Community bankers have never been the subject of a more encouraging speech than they were on Oct. 9 when U.S. Treasury Secretary Scott Bessent delivered a 15-minute proclamation declaring a new era of “parallel prosperity” where “Main Street and Wall Street grow together.”.He said community bankers are “laying the foundation for America’s Golden Age,” and he urged them to “go on offense ... leverage the new regulatory landscape to your advantage and expand your role in the American economy.”Noting some of the steps taken by the bank supervisory agencies since the beginning of the year to reduce the regulatory burden on community banks (streamlined exams and faster application approvals at the FDIC; reduced fees and improved exams at the OCC), Bessent promised more to come, including efforts to improve regulatory tailoring. He said “reforms to the rating system; … mechanisms for independent appeals of supervisory criticisms; coordination to avoid duplicative examinations by different regulators, and a review of the core platform providers, including contract terms that prevent community banks from innovating for the future,” are all in the works. Bessent was telling community bankers that this is their moment. Now is the time for bankers and their advocates to push for long-desired changes and improvements to the industry. The bipartisan support shown recently for reforms to the deposit insurance system is one area ripe with potential. Between now and next year’s midterm elections, I think bankers have an open lane to race toward further reg relief that could free them up to help many more people in the coming decades.Bessent mentioned that de novo chartering has dropped precipitously since the passage of the Dodd-Frank Act in 2010, now averaging, he said, six per year, compared to a decade earlier when 100-plus new charters per year was normal. Any industry, including banking, needs a regular flow of new entrants to remain healthy. Changes to capital rules that allow investor groups to start banks with far less than the $25 million or so that it requires today would go a long way toward encouraging more de novos. On the flip side, swift approvals on bank sales cultivate confidence among investors interested in banking.Bankers, in fact, do have a unique opportunity in the current environment, which won’t last forever. Bessent’s advice is sound: “Go on offense.”