America’s community banks hope for lighter regulation

A FEW weeks ago Standard Financial, a bank with assets of just $488m and a mere nine branches, merged with Allegheny Valley Bancorp, a slightly smaller neighbour in the suburbs of Pittsburgh. The main reason for the deal, says Tim Zimmerman, Standard’s chief executive, was the rising cost of regulation—though competition from PNC, a $371bn colossus based in the city, also played a part. “Without the regulatory overreach…since the crisis,” Mr Zimmerman says, “we’d probably both have gone along on our own, I think.”

Standard is one of America’s 5,400 community banks: local lenders, funded chiefly by deposits, who pride themselves on knowing their turf by the inch and their customers by name. Their size can range up to $10bn in assets, but most are much smaller: over 5,000 banks and savings institutions have less than $1bn and more than 1,500 under $100m. They account for 92% of federally insured banks. Though they make only 16% of all loans, they provide 43% of small-business loans.

But their numbers are in long-term decline, falling by one-third in the past ten years. More than 400 failed between 2008 and 2012. Only four have opened since. Yet four disappear every week—most, like Allegheny Valley, by merging with another community bank.

Despite their thinning ranks, community banks are practised lobbyists: almost every congressional district has at least one. In late April and early May the Lilliputians—in the guise of the Independent Community Bankers of America (ICBA)—were warmly welcomed to Brobdingnag. Greeting more than 100 of them at the White House, Donald Trump called them “the backbone of small business in America” and promised to roll back regulation, notably the Dodd-Frank act of 2010. Both Jeb Hensarling, chairman of the House of Representatives Financial Services Committee, and Steven Mnuchin, the treasury secretary, addressed the ICBA at breakfast, before the bankers headed for Capitol Hill.

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