I want to get an early start on wishing a HAPPY NEW YEAR to all BLPB readers!  May 2020 be one of your best years yet!  I’m celebrating by going to my very first “Shrimp Drop” with my mom.  Turns out that Fernandina Beach, FL. is the “Birthplace of the Modern Shrimping Industry.”  I do love shrimp!

Other than this, I can’t think of a more exciting way to ring in 2020 than by reading a new, fantastic article on banking!  Fortunately, I didn’t have to look far.  Jeremy C. Kress and Matthew C. Turk recently posted: Too Many to Fail: Against Community Bank Deregulation (here).  Legal scholarship has thus far paid scant attention to community banks.  After reading their work, you’ll understand why this shortfall is unfortunate, and this article so important.  Here’s the abstract:  

Since the 2008 financial crisis, policymakers and scholars have fixated on the problem of “too-big-to-fail” banks. This fixation, however, overlooks the historically dominant pattern in banking crises: the contemporaneous failure of many small institutions. We call this blind spot the “too-many-to-fail” problem, and document how its neglect has skewed the past decade of financial regulation. In particular, we argue that, for so-called community banks, there has been a pronounced and unjustifiable shift toward deregulation, culminating in sweeping regulatory rollbacks in the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018.

As this Article demonstrates, this deregulatory trend rests on three myths. First, that community banks do not contribute to systemic risk and were not central to the 2008 crisis. Second, that the Dodd-Frank Act imposed regulatory burdens that threaten the survival of the community bank sector. And third, that community banks cannot remain viable without special subsidies or regulatory advantages. While these claims have gained near-universal acceptance among legal scholars and policymakers, none of them withstands scrutiny. Contrary to the conventional wisdom, community banks were key participants in the 2008 crisis, were not uniquely burdened by post-crisis reforms, and continue to thrive economically.

Dispelling these myths about the community bank sector leads to the conclusion that diligent oversight of community banks is necessary to preserve financial stability. Accordingly, this Article recommends a reversal of the community bank deregulatory trend and proposes affirmative reforms, including enhanced supervision and macro-prudential stress tests, that would help mitigate systemic risks in the community bank sector.