Lower costs and ability to differentiate service to increase competition. I work in the banking industry. I've seen first hand the strain higher regulations have on smaller institutions. It's not easy to meet. Big banks can meet them because they can afford the technology costs and have large admin teams in the back that make sense to pay. The whole economies of scale is very real. I've seen FIs completely fail trying to meet higher standards. That's something you won't see in the news either. Oftentimes, the whole reason consumers are banking at smaller FIs is to avoid all the regulatory bloat so when a smaller FI starts requiring all the exact same information as a big bank, the consumers wonder why they're even bothering with the small FI and just go with the big bank that has more people employed, has better online banking and overall services. The higher regulations can literally kill smaller FIs.
I'll give you a quick example. Say you're a small credit union that prides themselves in being able to provide lending to small businesses in the community in order to help the community prosper. Everyone in the local community knows that if they want a business loan you're the credit union to go to because the big banks would never approve these businesses for a loan. Now imagine the credit union grows in size and is forced to have to take on the same regulations as the big banks. Now, all the previous businesses that the credit union would have approved for loans, they have to deny them for loans to meet the new regulations. Now everyone in the community feels their local credit union is the same as a bank so why would they have loyalty to the credit union anymore? This could kill the credit union.
Lower costs and ability to differentiate service to increase competition. I work in the banking industry. I've seen first hand the strain higher regulations have on smaller institutions. It's not easy to meet. Big banks can meet them because they can afford the technology costs and have large admin teams in the back that make sense to pay. The whole economies of scale is very real. I've seen FIs completely fail trying to meet higher standards. That's something you won't see in the news either. Oftentimes, the whole reason consumers are banking at smaller FIs is to avoid all the regulatory bloat so when a smaller FI starts requiring all the exact same information as a big bank, the consumers wonder why they're even bothering with the small FI and just go with the big bank that has more people employed, has better online banking and overall services. The higher regulations can literally kill smaller FIs.
I'll give you a quick example. Say you're a small credit union that prides themselves in being able to provide lending to small businesses in the community in order to help the community prosper. Everyone in the local community knows that if they want a business loan you're the credit union to go to because the big banks would never approve these businesses for a loan. Now imagine the credit union grows in size and is forced to have to take on the same regulations as the big banks. Now, all the previous businesses that the credit union would have approved for loans, they have to deny them for loans to meet the new regulations. Now everyone in the community feels their local credit union is the same as a bank so why would they have loyalty to the credit union anymore? This could kill the credit union.