ST. LOUIS—Compliance is putting a big dent in the wallets of community banks, which spent $4.5 billion on coping with regulations during 2014, a new report indicates.
The survey findings were released during the recent 2015 Community Banking in the 21st Century research and policy conference—a conference co-sponsored by the Federal Reserve System and the Conference of State Bank Supervisors and hosted by the Federal Reserve Bank of St. Louis.
The survey was conducted by state banking commissioners and sampled 974 community banks across the country. It asked bankers to identify the amounts attributable to compliance in five categories of operating expenses.
“The expenses are part, but not necessarily all, of a bank’s overall compliance burden. These costs are likely to exhibit economies of scale—that is, they increase (but at a decreasing rate) with bank size,” explained Drew Dahl, economist at the Federal Reserve Bank of St. Louis. “It is, of course, a matter of opinion as to whether these costs are appropriately balanced against their benefits in terms of bank safety and consumer protection. But from an objective perspective of profitability, it can be said that they represented 22% of community bank net income in 2014.”
Surveyed banks indicated that regulatory compliance accounted for:
- 11% of their personnel expenses
- 16% of data processing expenses
- 20% of legal expenses
- 38% of accounting and auditing expenses
- 48% of consulting expenses
“To better understand cost impacts, the survey applied these percentages to the aggregated dollar amounts, in each category, across all community banks; thus, the estimated $4.5 billion in compliance costs in these categories alone,” Dahl said.
CUNA recently released an analysis suggesting the annual cost to credit unions of regulations is $6.6-billion, as CUToday.info reported here.