Dodd-Frank proves resilience of community banks

Editor's Note: This column was part of our July 31 Pulse. The weekly enewsletter is sent each Thursday to our list of nearly 15,000 subscribers.July 21, 2025 marked the 15th anniversary of the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Implemented following the 2007-08 subprime mortgage crisis, the bill was promoted as protecting the financial system against misconduct by the largest banks through raising capital standards and tightening mortgage lending standards. .Despite that stated focus, the impact of Dodd-Frank has trickled down to community banks. Smaller banks have faced a more resource-intensive mortgage lending approval process during the past 15 years, despite not employing the subprime real estate lending practices frequently attributed as a cause of the 2008 financial crisis. Community banks are more likely to lack the compliance staffing to account for the more time-consuming process, leading some to exit mortgage lending altogether. Having fewer local mortgage lending options is never beneficial for small communities. Dodd-Frank — along with a dearth of de novos and industrywide desire to scale — has likely played a role in the number of community bank charters falling to less than 4,000 today from more than 6,500 in 2010. Dodd-Frank’s biggest failure, however, is that it has not prevented “too-big-to-fail” banks, which was one of its top goals following the massive bailout of the largest financial institutions in 2008. Today, the top four banks in the country — JPMorgan Chase, Bank of America, Wells Fargo and Citigroup — hold a combined $11.5 trillion in assets. Any failure from the big four will lead the federal government to take action to stem economic losses. Community banks don’t enjoy the same implicit deposit protection.Dodd-Frank appears safe from repeal, even as Republicans control the House, Senate and Presidency. The fate of several significant parts remain in limbo, however. One of the most consequential parts of the bill, the Consumer Financial Protection Bureau, has been effectively shut down under President Donald Trump. Despite the loss in market share and growing compliance costs, community banks have proven resilient. According to an FDIC study, community banks had more rapid growth in return on assets ratios, higher net interest margins, better asset quality and higher loan growth rates than non-community banks from 2012-20. More bank mergers and acquisitions are inevitable, because of the heightened compliance burden, along with pressures to scale and succession planning challenges. Despite those hurdles and the ongoing compliance burden from Dodd-Frank, community banks are resilient and continue to effectively serve their customers. As long as those two qualities exist, smaller banks will always have a strong future.