Laws and the Community

Laws affect the community in both positive and negative ways.  Their importance is being able to maintain the peace, and depending on how they are enforced will determine whether the effects that they have on the community is positive or negative. Economically a law may lead to an increased risk in the economy of a society or may lead to a decline. The paper discusses the effects of the Dodd-Frank Act to the local banks. The Dodd-Frank Act was enacted after the 2008 financial crisis. It was meant to avoid an occurrence of such a disaster ever again. This decision was intended to be beneficial to the community, but with time it has appeared to bring down institutions that are close to the local consumers leaving them stranded and without anybody to serve them. In doing so, The Dodd-Frank Act set aside some regulation that was to be followed. The management can be seen to favor the already strong and established financial institutions (bank) as the leading producers of the services while deteriorating the small community banks. In also doing so there is a favored production of the service from the big banks and money institution as they have more legal advantages than the locals.

The paper observes the factor and issue brought by the Dodd-Frank Acct in connection to the three fundamental economic questions.

Dodd-Frank Act.

Dodd-Frank Act is a result of the financial crisis in 2008 where there was a breakdown of the American Residential real estate market. This lead to some unavoidable effects like unemployment, a decrease in the credit market and others. What followed was policy-making while trying to cab the impact of the collapse. During the period Dodd-Frank come up with a policy that comes to be enacted as the Dodd-Frank Act in January 2010.

The Dodd-Frank regulations were first the “financial stability oversight council establishment.” Secondly provision of the orderly wind-down of crucial financial institution and prevention of a recurrence of too big to fail; Customer security through consumers Financial protection Bureau; increase honesty for the derivative markets; and mortgage reforms.

The Dodd-Frank Act not only did it flopped to handle the problem that leads to the crisis adequately, but it imposed afflictions on companies that may be costly to carry. Among these businesses affected is the community bank. The effect of the Dodd-Frank acts on the community isn’t easy to understand. This due to the statue’s immensity, the process of making rules which is long, and factors that influence the profitability, size and even the number of a community bank.

The implementation of the Act was meant to prevent and if possible to stop an occurrence of such a financial crisis in the future. The Act wanted to defend the customers and the steadiness of the monetary system. Community banks serve millions of people. Breaking down their model would mean that many people are left unserved/ underserved. One effect of the Dodd-Frank Act is that it forced the community banks to amalgamate or go out of business. The result of this is that there has been an increased focus of assets on the “too-big-to-fail” banks.

Community banks have served for decades and are essential in rural areas. They are vital providers of business loans. They are known for meeting the community requirement through the offering of more tailored services. They can serve the community in a much better way than the non-local banks. The advantages that they have is that they are deeply integrated into the society, they have deep ties, there is always a daily interaction with the community, and thus they can be said to know the community problem better. The community banks, therefore, play a crucial role in the community economy and also the nations concerning the small businesses and the communities.

The community financial institution was not the source financial crisis in 2008.  They were never involved in residential mortgages, and they did use products to engage in risky speculations to maximize return. The policymakers enacted the Dodd-Frank act to avoid the “too-big-to-fail,” but it has worked in the opposite of that. The bill has so far forced the consolidation of the few megabanks by increasing the competitive advantage of the larger banks and financial institutions as by (Lux). The Act has made it even harder for the community banks customer to be even able to obtain loans. The fact that the act inspires commercial product normalization will undermine the liaison banking model. In doing so, there will a decrease in the assortment of client banking options. The credit and banking services have even become more costly for small businesses, the countryside communities, and the companies that are less profitable than the large banks to serve.

The traditional financial institution like the community bank is fundamental as they tend to increase the conventional financial service even in time of crisis. The effect of the Dodd-Frank Act can be seen to undermine the small banks. In doing so, it threatens the growth of the local economy and at the same time the country’s economy.

The setting of high standards with the aim of creating an environment that would prevent the repeat of 2008 financial crisis was the aim of the act, but it failed to develop enough details on the law that would be used to protect the community banks. Too many regulations have led to the manager of the banks to lose their ability to focus on their main agenda of serving the customers. The burden becomes worries, and they can divert resources and the time needed for the day to day activities. This may lead to the failure of the bank as by (Pierce)

Due to the need to comply with the regulation that is stipulated in the Act, The community banks lack sophisticated legal compliance staffs that will be able to interpret the rules and mitigate through the various way of complying without the compromising of their daily activities. The Act has created an unbalanced competitive landscape as the community banks, are faced with competition from the well-established firms, credit unions (do not pay taxes), securities firms, and other larger rivals that are deemed “very” important by Dodd-Frank.

The policy although has and is continuing to stabilize and standardize the economy has led to the decline of the community bank. The degree to which Dodd-Frank act affected the community bank isn’t easy to understand, but the regulatory burden that has fallen on their hands is heavy.  The locals are not left behind as they are forced to go ahead and engage with the bigger banks although they might be far away from their locality.


Work cited