In response to the COVID-19 pandemic and the ensuing economic crisis, Congress deputized the financial services industry, including banks, credit unions and financial technology lenders, to swiftly deliver assistance to struggling small businesses throughout the country.
I am a senior member of the House Financial Services Committee and saw firsthand the importance of ensuring small businesses were able to access credit during the time of stress. Over 5,000 lenders participated in the Paycheck Protection Program to keep small businesses afloat as states and localities implemented COVID mitigation strategies that kept people home and shuttered businesses. In the Commonwealth alone, small businesses received over $7.8 billion in forgivable loans to keep their doors open and paychecks flowing to workers and their families.
As the economy continues its rapid recovery, businesses are reopening with floods of customers and people are going back to work, it is important that we reflect on the trials and triumphs of the last 15 months. The government assistance to small businesses wouldn’t have been possible without a strong partnership with financial institutions, especially local community banks.
That is why I am proposing legislation to empower community banks with the flexibility to continue leading the charge in providing access to capital for individuals, homeowners and small businesses in rural communities, which is the key to economic growth and prosperity for all. Community banks are built on relationships between bankers and their friends, neighbors and fellow citizens. Unfortunately, recent years have seen many bank branches close and a dramatic decline in new, or de novo, community bank formation, largely due to increasing compliance costs, ballooning capital requirements and competitive market pressures from a trend in bank mergers and acquisitions. The disappearance of local banks in communities around the country often times leaves a void that hits its citizens hard.
Since the 2008 financial crisis, de novo formation has slowed significantly. There were 181 charters granted in 2007; but between 2010 and 2019, fewer than ten new banks opened, on average, per year. A recent Federal Reserve study shows that 51% of the 3,114 counties in the U.S. saw net declines in the number of bank branches between 2012 and 2017. These declines in bank branches disproportionately hit rural communities. A total of 794 rural counties lost a combined 1,553 bank branches over the five-year period, a 14% decline. The negative financial impacts on rural counties of branch closures are perpetuated by the continuing difficulties, due to burdensome regulations and other roadblocks, of de novo community bank formation. While these trends leave residents of rural counties without access to much-needed financial services, they also have negative downstream impacts on the communities.
The Federal Reserve report identified 44 counties considered “deeply affected” by trends in bank closures and consolidation, which it defines as counties that had 10 or fewer branches in 2012 and lost at least 50% of those branches by 2017. 89% of the identified “deeply affected” counties are rural counties, including Nicholas County, Kentucky.
Recent studies also suggest that citizens in rural communities are much more likely than people in urban or suburban areas to do their banking in-person at a branch. The advances in mobile and online banking are often out of reach for much of rural America due to substandard or non-existent broadband access. Without a branch nearby, our neighbors in rural counties are increasingly unable to access traditional financial services. Rural community banks need commonsense regulatory relief to combat the trend in closures, consolidation.
To address these issues and boost de novo bank formation, I introduced the Promoting Access to Capital in Underbanked Communities Act. The bill permits new banks to phase in some of the costly compliance burdens over the course of three years, which gives them a good launching pad without compromising their safety and soundness. It also makes it easier for banks to open in underserved rural communities, like those highlighted in the Federal Reserve report, and removes outdated regulations that limit how much business a bank can do with local farmers and ranchers.
Additionally, the bill also makes it easier for lenders to lend to agriculture businesses in their communities. Under current law, lenders are limited in how much they can lend, as a percentage of total outstanding loans, to certain sectors, including agriculture. This bill removes those limits.
I am hopeful that my bill will receive bipartisan support in Congress. It’s a simple and straightforward legislative proposal to help solve a very real problem that is facing our rural communities today. Through passage of the Promoting Access to Capital in Underbanked Communities Act, Congress can promote equity and financial inclusion, and prevent rural America from being left behind.