The US government is moving to revive small and community banks, with Treasury Secretary Scott Bessent urging tailored regulation to boost local lending, strengthen Main Street economies, expand housing access, and improve financial resilience.
The United States government is moving to revive small and community banks, arguing that years of heavy regulation have weakened local lending, reduced competition, and slowed economic growth, Treasury Secretary Scott Bessent told lawmakers this week.
Testifying before the House Financial Services Committee on Wednesday, Bessent said community banks play a vital role in supporting small businesses, agriculture, housing, and local economies, but their numbers have sharply declined since the global financial crisis of 2008.
“More than 50 per cent of community banks have disappeared since the great financial crisis,” Bessent told the committee, adding that the decline continued even after the crisis had officially ended. He said the steady erosion of local banks has harmed credit availability, particularly in rural areas and smaller towns.
Bessent placed much of the blame on what he described as “one-size-fits-all” regulation, which he argued treats small community banks as if they pose the same systemic risks as the nation’s largest financial institutions. According to the Treasury Secretary, compliance costs and regulatory burdens have disproportionately affected smaller lenders, limiting their ability to serve local borrowers.
Under previous regulatory frameworks, Bessent said, community banks were forced to divert resources toward compliance rather than lending. He told lawmakers that the administration is now pushing for “tailored regulation” that aligns oversight requirements with a bank’s size, complexity, and risk profile.
Republican members of the committee voiced strong support for the administration’s approach. They argued that community banks have deep knowledge of local markets and are uniquely positioned to finance small businesses, farms, and housing projects that may be overlooked by large national banks.
Bessent said community banks continue to provide a significant share of credit for agriculture, small commercial real estate, and local enterprises. However, he warned that continued consolidation in the banking sector could weaken competition and reduce access to credit outside major financial centers.
“Reviving local banks is essential to strengthening Main Street,” Bessent said, adding that a healthy network of community lenders would help expand housing supply and promote economic growth beyond large metropolitan areas. “It’s Main Street’s turn,” he told the committee.
Democratic lawmakers, however, expressed concern that easing regulations could increase financial risk. They cautioned that past deregulation contributed to financial instability and argued that strong safeguards remain necessary to protect consumers and the broader economy.
Bessent rejected comparisons to the period leading up to the 2008 financial collapse. He said excessive regulation can also pose risks by restricting credit, suppressing economic activity, and making the financial system less adaptable.
He said the Financial Stability Oversight Council is working closely with banking regulators to modernize supervision, streamline oversight, and eliminate unnecessary burdens—particularly for small and mid-sized institutions.
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The administration’s efforts also include encouraging the creation of new banks, a trend that has slowed dramatically in recent years. Bessent noted that before the financial crisis, dozens of new banks were formed annually, while today new charters are relatively rare.
Restoring a diverse banking ecosystem with strong community lenders, Bessent said, would make the US financial system more resilient, competitive, and better equipped to support long-term economic growth.
