Policy Recommendations to Protect and Grow the Community Banking Sector
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The banking industry has contracted from over 18,000 institutions in the 1980s to just over six thousand banks today. Since 98 percent of banks have fewer than $10 billion in assets the overwhelming majority of industry consolidation is concentrated in the community banking sector. Research shows that while some of the decline can be attributed to bank failures, the majority of it is due to the collapse of new bank formation. In order to slow the decline of the community banking sector and attempt to replenish the “stock” of community banks lost to failure and consolidation, policymakers should consider taking several steps to releave community banks from some of the more burdensome regulations that impair their ability to lend. Additionally, policymakers should encourage the Federal Deposit Insurance Corporation to ease some of their requirements in order to charter a de novo bank.