The differential impact of the Dodd–Frank Act on niche non-metro lenders

Abstract

Provisions of the Dodd–Frank Act increase the transparency of real estate transactions between financial institutions and consumers. The Act imposes substantial compliance costs on all financial institutions. In non-metro areas, cooperative lenders may be the only source of real estate loan products. In this study, we investigate whether compliance with the Act has caused some cooperative financial institutions to bear heavier compliance burdens than others and to deduce the subsequent consequences for consolidation and corporate governance. Using a dataset of non-metro credit unions and all agricultural credit associations, we observe that compliance costs have decreased cooperative financial institution financial performance and likely caused the exit or failure to enter smaller institutions. Cooperative financial institutions have redistributed control and operations management instead of wealth.