In response to vulnerabilities that had arisen during the financial crisis that began in 2007, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) to strengthen financial stability and protect consumers. As the Dodd-Frank Act and other reforms have been implemented through recent rulemaking by financial regulators, some in Congress have claimed that the pendulum has swung too far. They argue that the additional regulation has resulted in significant regulatory burden, particularly for small banks, that has stymied economic growth and reduced consumers' access to credit. A frequently heard critique is that the regulations are "one-size-fits-all," and are unduly burdensome to small banks even though they were not the cause of the crisis. Those who are sympathetic to this argument believe that because large banks pose greater risks to the stability of the overall financial system, small banks should be exempted from regulations that might be useful or necessary for large banks. Others, however, view the current regulatory structure as having achieved the appropriate tradeoff between the benefits and costs of regulation, and are concerned that regulatory relief for banks or other financial institutions could negatively affect consumers and market stability. This report explains the concept of regulatory burden and the different ways it can be manifested. It analyzes whether small banks are relatively more burdened by regulation than big banks. To help answer that question, the report looks at the relative treatment of small and large banks in recent major regulatory proposals. It does not attempt to answer the question of whether small banks face too much or too little regulation in absolute terms, since that depends on policymakers' judgments about balancing financial stability, credit availability, consumer protection, and other objectives. The report also evaluates rationales for reducing the regulatory burden on small banks relative to large banks, policy approaches to do so, and the potential consequences on other market participants of providing relief to small banks. Financial regulation can result in both benefits and costs. The benefits of financial regulation—discussed in more detail in the section " Who Regulates Banks and What Do Regulators Do? "—include protecting consumers from fraud, discrimination, and abuse; ensuring that banks are less likely to fail; and promoting stability in the financial system. The cost associated with government regulation and its implementation is referred to as regulatory burden . In the banking world, regulatory burden can be borne by banks, consumers, the government, and the economy at large. For example, under the Ability-to-Repay requirement of the Dodd-Frank Act, a lender must verify that a borrower has the ability to repay a mortgage prior to offering the mortgage. The bank may face higher costs because it now must train its staff how to properly apply the rule and may spend more time reviewing each application. Some of this cost may be passed on to consumers through higher interest rates and fees or fewer lending options. The government may bear costs associated with writing rules to implement the statutory requirement and examining lenders to ensure that they are complying with the rules. Regulatory burden could result in fewer mortgages being originated, which in turn could affect the broader economy through fewer home sales and reduced construction on new homes. The rule may have benefits—ensuring that borrowers are more likely to receive mortgages that they can repay—but there are also costs. Regulatory burden on banks is manifested primarily in two different ways, operating costs and opportunity costs. Operating costs (or compliance costs ) are the costs the bank must bear in order to comply with regulation. For example, in response to a new rule, a bank may spend more money training its employees to ensure they understand the new rules, and the bank may have to purchase updated computer programs because the new rule defines concepts in ways that are incompatible with its old systems. Updating computer programs is an example of operating costs that are one-time costs borne upfront. Other costs, such as hiring additional compliance officers, are recurring costs that exist so long as the requirement is in effect. Opportunity costs are the costs associated with foregone business opportunities because of the additional regulation. A bank may, for example, offer fewer mortgages because new regulations make mortgage lending more expensive and instead choose to perform a different type of activity that is now more profitable. Regulatory burden can influence where in the broader financial system a certain activity will be performed. Small-dollar loans, for example, can be offered by both banks and nonbank institutions (i.e., financial institutions that do not accept deposits), such as payday lenders. If a new regulation for small-dollar loans only applies to banks or it applies to both banks and nonbanks but it is less costly for nonbanks to comply, nonbanks would be expected to perform a larger share of small dollar loans. A comprehensive assessment of the broader societal costs and benefits of a regulation would need to include how the financial system adapts and responds to the regulation, which is beyond the scope of this report. Much of this report focuses on the costs of regulation borne by banks. However, the presence of regulatory burden does not speak to the relationship between costs and benefits, and thus does not necessarily mean that a regulation is undesirable or should be repealed. A regulation can have benefits that could outweigh costs, but the presence of costs means, tautologically, that all regulations result in regulatory burden. The concept of regulatory burden can be contrasted with the phrase unduly burdensome . Whereas regulatory burden generally refers to the costs associated with a regulation, unduly burdensome refers to the relationship between the benefits and costs of a regulation. For example, some would consider a regulation to be unduly burdensome if costs are in excess of benefits or if the same benefits could be achieved at lower costs. But the mere presence of regulatory burden does not mean that a regulation is unduly burdensome. Policymakers that advocate for providing banks with relief from a regulation often do so because they believe the regulation is unduly burdensome, not just because it imposes a regulatory burden. Critics of a relief proposal typically accept that the regulation causes regulatory burden, but would likely argue that the burden does not rise to the level of being unduly burdensome because the benefits of the regulation justify its implementation. To provide the context necessary to understand the regulatory burden on small banks, the next two sections explain what is meant by small bank and describe how banks are regulated. The term bank can be used to mean different things by different people, but this report will use the term bank as it is used in federal regulatory policy. Banks are a subset of d epository institutions , which are issued specific business charters by their primary regulator that permit them to accept deposits. There are separate charters for commercial banks, thrifts (also called savings and loans, savings associations, and savings banks), and credit unions. A charter may be issued by a federal or state regulator. This report focuses on federal depository institutions that are not credit unions and refers to them collectively as banks, unless otherwise noted. Banks are typically classified as small or large based on their total asset size (i.e., the value of the loans and securities they hold), but there is no standard, commonly accepted threshold for what asset size constitutes a small bank. Some researchers define small as $1 billion or less in assets, whereas others define it as $10 billion or less. The Federal Reserve defines community banks as those banks with less than $10 billion in assets. Often, the term community bank is used as a synonym for small bank. The Office of the Comptroller of the Currency (OCC) defines community banks as generally having $1 billion or less in assets. Others define community bank by combining size with a focus on relationship-based services, such as lending, with the local community. The Federal Deposit Insurance Corporation (FDIC) has a research definition of community banking organizations, which it defines as (1) banks with less than $1 billion in assets as long as the bank makes loans and takes deposits, does not hold a large share of foreign assets, and is not a specialty bank; or (2) banks with more than $1 billion in assets that meet certain criteria, such as having more than one-third of their assets in loans, core deposits equal to at least half of their assets, and a limited geographical presence. By this definition, not all small banks are community banks, and not all community banks are small banks, although the two are closely related. Typically, the size of the bank is measured at the depository subsidiary level. Counterintuitively, this definition means that some very large and complex financial institutions own subsidiaries that qualify as small banks. This report will use the term s small bank and community bank loosely because there is no widely accepted definition. The terms small bank and community bank as commonly used encompasses a disparate group of institutions, varying in size, activities, and charter. Asset size is not the most intuitive concept to understand what is meant by a small bank. To provide some additional perspective on the size of small institutions, it is informative to look at the number of employees at institutions of different asset sizes. At the end of 2014, a bank with approximately $100 million in assets had, on average, 25 employees, $1 billion in assets had, on average, 214 employees, and $10 billion in assets had, on average, 1,173 employees. These estimates might be larger than what a lay person would think of as a small institution. Notably, the average number of employees at a bank with $10 billion in assets is more than double the Small Business Administration's research definition of a small business as having 500 employees or less. Small banks, under almost any common definition, have seen their numbers dwindle and their collective share of banking industry assets fall in recent decades. As Figure 1 illustrates, there has been a long-term decline in the number of small banks in the United States, and, as shown in Figure 2 , a long-term increase in the share of assets held by the largest banks.