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If smaller banks are more vulnerable to acquisition, he says it will be by the banks with $5 billion to $50 billion in assets, as they try to gain some size. Larger banks are limited by what the regulators will allow. “The largest banks have seen some of their most attractive business lines impacted by new regulations and greater scrutiny of bank fees, which has reduced their revenue. Making acquisitions isn’t their way out of the issue. To improve the situation, the big banks are attacking their cost structures,” he explains.
For the smaller banks, Kisting says the regulatory problem centers on the cost of reporting that must be done and in building the infrastructure around that reporting.
In Bank of American Fork’s case, Beard says building that infrastructure meant the addition of three or four upper-level associates, one being an attorney, to focus specifically on regulatory compliance.
“Interest rates have remained low and costs have remained high,” he says. “If you add the additional expenses from the regulatory burden, it squeezes the margin even further.”
Ultimately, Beard says regulatory strangulation may cause some of the older banks to sell out as consolidation as the industry continues, but 100-year-old Bank of American Fork and 108-year-old Lewiston State Bank want to preserve the community banking experience. “There are a lot of community bankers in the country that are really fed up with the regulations, but we’d rather figure out a way to help community banks come together and preserve what is good about that system,” says Beard.