Poor financial policies have destabilized community banking for too long with excessive regulation and insufficient relief.
2023 saw the highest amount of bank closures since the Great Recession, in part due to legislation like the Dodd-Frank Act which crushed community banks’ abilities to offer loans and services. Inspired by the damage, Federal Reserve Chairman Jerome Powell refused to lower interest rates this year, forcing local banks to continue bleeding money on extraneous upkeep operations. Michelle Bowman, a member of the Federal Reserve Board of Governors, called for lower capital requirements and three rate cuts, arguing that current policies “underachieved in providing regulatory relief.”
While Powell stays mum, US Rep. Tim Moore (R-NC) took action by introducing a solution: The TRUST Act of 2025. Introduced in the U.S. House, and now dormant since July, H.R. 4478 seeks to increase the asset limit for banks eligible for extended examination cycles from $3 billion to $6 billion. The Act is a simple number tweak, but profound in its implications to counter the financial status quo.
The TRUST Act would provide crucial customization to community banks, reduce examination burden, and enable them to allocate resources to their constituents better. It’s a potent economic and political plan worthy of passage.
Community banks face unnecessary but significant regulatory burdens today. Harvard University found that these institutions suffer from the regulatory barriers meant for bigger banks, costing them more and diminishing their lending services. The Mercatus Center discovered that, since the Dodd-Frank Act’s passage in 2010, 90% of small banks have incurred greater compliance costs, and almost 83% reported surges of over 5%. Regulation makes it difficult for them to operate profitably, leading to fewer new bank charters since 2011. Simultaneously, 30% of community banks have shuttered from 2012 to 2019, and are closing at faster rates since the COVID-19 pandemic in states like Virginia, Maryland, and Oregon.
Doubling the asset threshold would allow more community banks to undergo regulatory examinations every eighteen months rather than annually. The adjustment gives local banks the chance to secure initial investments and grow, and incentivizes well-managed and well-capitalized establishments. As regulatory agencies could shift examination resources towards bigger banks, or those with performance issues, the American Bankers Association noted that this Act “ensure[s] bank regulations do not impose unintended constraints” on the little guys.
Without pesky regulation, small players can focus on lending and financial services — something they’ve lacked the power to do for years. Their share of total industry assets has depleted approximately 12% since 2010, a far cry from their 38% share in 1984. The Federal Reserve Bank of Kansas City detailed how the pace of loan growth among local banks has slowed since 2021, primarily in the real estate and construction lending sectors. These findings align with other studies from the Federal Reserve Bank of Philadelphia and the American Action Forum, which showed community banks suffered drops in total lending and revolving consumer credit.
The TRUST Act is a remedy for such downturns and a much-needed boost to economic opportunity. Despite holding a minuscule portion of assets, backyard banks comprise 37% of small business loans and 63% of agricultural loans. As fewer banks are swept into higher-cost compliance regimes, hundreds of millions of dollars will be freed up for neighborhood and entrepreneurial investment. Increased wiggle-room means banks can return to their core functions: supporting affordable housing, job creation, and small business stabilization.
All these benefits bolster community banks in retaining their main appeal: customizable approaches to clients. Their relationship-driven approaches have earned high satisfaction scores from customers — sometimes outpacing large banks by double digits. This stewardship and personalized service differentiate them from the pack, securing a loyal customer base that allows them to compete, innovate, and take risks on new, innovative ideas. Low asset thresholds conflict with this expansion, dwindling available products and services, and making the banking industry less dynamic.
After all, local banks have repeatedly rescued their communities. Several years ago, one Washington institution quickly created loan modifications for clients affected by a timber mill strike. Nationwide, community bank leaders have prioritized mental health advocacy and funded rural hospitals and wellness programs. In 2025, they led the fundraising charge to help Texans recover from devastating floods, additionally rushing to assist Californians displaced by deadly wildfires. Community banks aren’t of a bygone era: they are responsive, residential partners that demand more assets to not only keep them afloat, but competitive and revered.
The TRUST Act is the long-overdue policy for American community bank prosperity. If our policymakers are serious about tailoring financial services, providing streamlined access to capital and relief, and improving market competitiveness, they must consider, and ought to vote for, the TRUST Act when Congress reconvenes.
