Earl Wright and Alfredo Ortiz write for foxbusiness.com warning against overzealous regulation of community banks in the wake of the Silicon Valley Bank failure because they offer the majority of small business loans and an even greater proportion of farm loans:
The federal response to the ongoing banking crisis may end up having a big impact on the nation’s smallest banks that bear no responsibility for the turmoil. Community banks have an outsized impact on local economies throughout the country, so hamstringing them with new costs would have broad consequences.
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Community banks provide roughly 60% of all small business loans and more than 80% of farm loans. Small banks also stepped up to deliver pandemic-era Paycheck Protection Program loans while many big banks dragged their feet. They serve rural America; approximately half of community banks are located in counties with fewer than 50,000 people.
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To ensure community banks can continue providing loan services for their communities, policymakers should exempt them from new fees and regulations coming out of this crisis. Research from the Minneapolis Fed finds that the costs associated with adding only two compliance employees to bank payrolls would make one-third of community banks unprofitable.
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