Why Community Banks Matter — and the Need for the Right Policy Approach

At MX, we deeply value the critical role that community banks play in the financial well-being of individuals and the growth of small businesses across the nation. Community banks and credit unions are not just places to store money — they are cornerstones of local economies and provide a personalized touch to essential financial services, fostering strong relationships that are particularly vital in underserved areas. Their dedication to understanding and meeting the unique needs of their communities is fundamental to a vibrant and inclusive financial system.

That's why we recently submitted a comment letter to the Honorable Members of the House Financial Services Committee in response to their recently published "Make Community Banking Great Again" principles. 

For the past 14 years, MX has been a proud partner to numerous community banks and credit unions across the United States. Their survival, economic prosperity, and ability to effectively serve their customers are of paramount importance to us. But, community banks are disappearing through consolidation, acquisition, or closure. 

Our mission to build financial strength for individuals, communities, and the world becomes harder in local communities that rely on these community banks to support their economy, small businesses, and citizens. We have a vested interest in ensuring the regulatory and economic landscape enables them not just to persist, but to flourish in an increasingly competitive environment.

Our letter highlighted several key areas where we believe thoughtful policy and regulatory approaches can significantly benefit community banks and the communities they serve. Here’s a summary of the key points we conveyed to the Committee:

1. The Importance of Tailored Regulation

We strongly support the Committee's principle advocating for the re-establishment of tailoring in prudential regulation and supervision. A one-size-fits-all approach fails to recognize the fundamental differences between community banks and large, complex institutions, often disproportionately burdening smaller banks and forcing them to divert resources from their core mission.

We emphasized that regulatory scrutiny should be commensurate with the actual risk posed to consumers. We highlighted the significant differences between non-secure data sharing practices that can lead to breaches and fraud, and the secure, permissioned data access facilitated by MX. Our technology empowers consumers to control their data, utilizing secure APIs that enhance security and enable personalized financial experiences. We urged regulators to recognize this fundamental difference in risk profiles when crafting regulations.

2. Fostering Innovation Through Clear Supervisory Expectations

MX wholeheartedly agrees with the Committee's emphasis on regulators being open to innovation while upholding safety and soundness, and ensuring they possess the technical skills for effective supervision. Innovation, particularly through partnerships with fintech companies like MX, is crucial for community banks to modernize their offerings and remain competitive.

Clear and consistent regulatory guidance regarding third-party relationships, including those with fintechs, is vital for fostering responsible innovation. As the House Financial Services Committee recently pointed out in a letter to Federal banking agencies, lack of clarity in this area can stifle the adoption of new technologies. We also highlighted the increasing need for regulators to develop expertise in emerging technologies like artificial intelligence (AI) to provide effective oversight that encourages innovation while protecting consumers.

3. Periodic Review of Cumulative Regulatory Impact

We support the call for federal prudential regulators to conduct periodic reviews of the cumulative impact of their regulations. Regularly assessing the overall effects of the regulatory landscape can identify unintended consequences, inefficiencies, and areas for improvement.

These reviews should specifically address any overlapping or conflicting requirements across different regulatory agencies that can lead to unnecessary costs and compliance challenges for community banks. Regulatory clarity is paramount for promoting commercial growth and fostering innovation, allowing community banks to allocate resources more effectively towards serving their customers and communities.

4. Balancing Efficiency and Competition in Bank Merger and Acquisition Review

MX recognizes the importance of a timely and efficient regulatory review process for bank merger and acquisition applications. However, we also stressed the critical need to balance efficiency with the potential adverse effects on competition that can arise from increased consolidation within the banking sector.

The significant decline in the number of community banks over the past two decades underscores the importance of carefully considering the impacts of consolidation, especially given the vital role these institutions play in serving small businesses and local communities. While a 120-day timeframe for review may enhance efficiency, it is crucial that regulators have sufficient time to thoroughly assess the potential impact on competition, small business customers and the continued viability of community banks.

Looking Ahead

MX appreciates the House Financial Services Committee's focus on the challenges and opportunities facing community banks. These institutions are an indispensable part of our financial ecosystem, and their continued evolution and success is vital for the well-being of communities across the nation.

We remain committed to being a supportive voice and a valuable resource in ongoing discussions about how to improve the economic and innovation landscape for community banks. By working together, policymakers, regulators, and industry stakeholders can create an environment where community banks can thrive, continue to serve their communities effectively, and embrace innovation to meet the evolving needs of their customers.