Bank Watch

Has Dodd-Frank led to better-run banks?

Sen. Elizabeth Warren, a Democrat from Massachusetts, says the Dodd-Frank Act has helped community banks do better than big banks. Others disagree.
Sen. Elizabeth Warren, a Democrat from Massachusetts, says the Dodd-Frank Act has helped community banks do better than big banks. Others disagree. Bloomberg

A prevailing view by critics of post-financial crisis regulations is that they have sent a wave of higher compliance costs crashing down on banks, with community banks being impacted more than their larger peers.

Just this month, Harvard University’s Mossavar-Rahmani Center for Business & Government published a study that says community banks have lost market share at nearly twice the rate they did prior to the Dodd-Frank Act. “Interestingly, community banks’ vitality has been challenged more in the years after Dodd-Frank than in the years during the crisis,” the study also points out.

While such findings might fuel criticism of Dodd-Frank, hedge fund manager Thomas Brown offers another perspective – that the rules have led to big banks being run better.

“One of the few good, and surprising, things to happen as a result of Dodd-Frank and the re-regulation of the banking industry generally is that, for the first time in memory, the big banks are being run in a way that can honestly be described as ‘competently.’ I’m not kidding,” Brown writes in a column Friday on, a site he runs.

Brown, a longtime critic of former Bank of America CEO Hugh McColl and former First Union CEO Ed Crutchfield, who both built major banks through acquisitions of other lenders, says the heavy focus that banks once had on empire-building harmed their ability to manage themselves.

Dodd-Frank put an end to such big-bank deals, Brown says.

“Size is anathema to banking regulators these days,” he writes. “Even if a big-bank CEO had the chutzpah to put together an old-fashioned blockbuster deal, the feds would shoot it down in two heartbeats. So what are bank CEOs to do, instead? Why, they can run their banks! And just about across the board, they’re doing a pretty good job at it.”

Among big-bank CEOs Brown lauds: Bank of America’s Brian Moynihan, who inherited the lender’s financial crisis-era troubles.

Brown credits Moynihan with freeing, “albeit expensively,” the Charlotte-based bank from its post-crisis “legal wrangles.”

And San Francisco-based Wells Fargo, he says, “has always been a tight ship.”

Like other observers, Brown points out that big banks have been better able to shoulder Dodd-Frank compliance costs than smaller lenders. Those added compliance costs are frequently cited as a key reason for post-crisis mergers and acquisitions of community banks.

Consolidations in the banking industry have cost the Charlotte region community banks in the wake of the financial crisis. In a recent example, Asheville's HomeTrust Bancshares acquired Charlotte's Bank of Commerce last year.

Brown says to expect more mergers and acquisitions of small banks.

“Big-bank deals may be a thing of the past, but I doubt that, as many small banks see the fix they’re in, the steady drumbeat of small-bank M&A is going to end anytime soon.”

Neither will opposing views of Dodd-Frank’s impact on banks. Sen. Elizabeth Warren, a Democrat from Massachusetts, earlier this month argued that the Wall Street reform law has helped community banks do better than big banks.

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Twitter: @DeonERoberts