U.S. Regulators Under Fire: Overregulation Allegedly Strangling Banks and Startups

Economists, investors, and entrepreneurs across the U.S. are sounding the alarm, accusing federal regulators of stifling innovation and favoring large institutions. Since 2008, the number of U.S. banks has plunged by 84%, while publicly listed companies have declined by 25%.

Chamath Palihapitiya: Regulation Is Killing Competition Prominent venture capitalist Chamath Palihapitiya criticized U.S. regulators on social media, claiming they are making the country "hostile to innovation." He pointed out that the number of publicly traded companies has dropped from 8,000 to about 6,000, while the volume of regulations and agencies has ballooned. 📉 He also highlighted the collapse in the number of banks — from 28,000 to just around 4,500. According to Palihapitiya, excessive oversight has undermined smaller institutions and boosted the dominance of large players. “We need a regulatory reset,” he concluded, calling for broad reform.

FDIC: New Bank Creation Has Nearly Stopped A recent April report from the FDIC shows a dramatic decline in the number of banks since the 2008 financial crisis, falling from 8,500 to 4,500. Acting FDIC Chair Travis Hill clarified that this drop is not due to a spike in mergers, but rather due to a sharp slowdown in new bank formations. Historical data shows that merger rates have averaged about 2.5% annually, while new charters have been rare in recent years.

Regulatory Overload Frustrates Entrepreneurs Entrepreneur Arthur Macwaters, co-founder of mental health startup Legion Health, shared data from George Washington University showing a huge rise in federal regulatory pages. Since the 1950s, the Code of Federal Regulations has grown from under 20,000 pages to over 180,000 by 2022. 📚 After a brief slowdown during the Reagan era, regulations surged again under Presidents Obama and Biden — fueled by laws like Dodd-Frank and the Affordable Care Act.

Capital Rule Changes May Be on the Horizon Amid growing pressure from the banking sector, U.S. regulators are reportedly preparing to ease certain capital requirements, specifically the Supplementary Leverage Ratio (SLR) — a rule implemented after 2008 to ensure banks could withstand economic shocks. 📉 The expected changes, which may be announced this summer, aim to enhance credit access and allow banks like JPMorgan Chase and Goldman Sachs to compete more effectively.

Summary While the number of U.S. banks and public companies continues to decline sharply, the volume of federal regulation is soaring. Investors argue that the current climate stifles entrepreneurship and innovation. Upcoming regulatory adjustments could offer some relief, but it remains to be seen whether they will be timely or substantial enough to restore balance between safety and competitiveness.

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