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Dodd- Frank and the Closure of Virginia Community Banks: How Regulatory Burden and "One Size Fits All" Policy Unintentionally Expanded Large Financial Institutions at the Expense of Community Banks Open Access

The differences between American community banks and more well-known large financial institutions have long been overlooked in the financial and regulatory environment. Despite the importance community banks provide to small-businesses, agricultural industry and in increasing financial literacy in America, regulatory legislation fails to assure that their business will be protected. In doing so, regulatory institutions are often unable to predict and assist financial institutions from failing and leading to larger scale financial downfall. Such an example comes with Dodd-Frank, established to stop "Too Big to Fail" institutions from taking advantage of the system and protect American consumers at large. Examining the existence of community banks in Virginia specifically, reveals that after Dodd-Frank passed community banks uncoincidentally closed or merged. This paper argues that the Dodd-Frank Act imposes a "one-size fits all" approach to the banking industry of Virginia, and as a result negatively impacts Virginia community banks who cannot afford to enact strict regulation with their already conservative lending model, one that uses customer relationships to ensure safe and sound services. Using publicly available FDIC data, this paper builds on existing literature pertaining to the downsides of Dodd-Frank and regresses the "Outcome" of Virginia bank closure or merging against the "Treatment Effect" of the passage of Dodd-Frank, also accounting for the financial institutions' ROA, a measure of stability, and "Asset Size" to allow for the influence of asset size on bank stature. Data was compared from the period between 2009 and 2010, as the control group, as well as 2010 to 2013, the "Treatment Effect" group. One can note that the purposeful unevenness and limitation to account for the preceding Great Recession, as well as to account for the time needed following Dodd-Frank for banks to be inspected and closed or merged. This regression provides important assumptions about the ever-present responses of large financial institutions in response to community bank closures and can be further used to track the health of small-businesses, financial literacy, and trends in banked populations of America. In sum, the "Treatment Effect" appeared to be a statistically significant against the "Outcome" in every regression while the bank's ROA and asset size were not statistically significant in any included combination. After proving a statistical causation of Dodd-Frank against the downfall of community banks in Virginia, this paper includes several potential solutions for future regulations, to ensure the health of community banks, and thus small businesses and agricultural lending in America, and to push the economy towards recognition and fairness.

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