WASHINGTON—New data from the Conference of State Bank Supervisors (CSBS) provides the strongest evidence yet that federal regulations disproportionately burden the nation’s smallest community banks.
A decade-long analysis of CSBS’s Annual Survey of Community Banks—covering 2015 through 2024—shows that institutions in the smallest asset quartile consistently spend a far greater share of their operating costs on compliance than their larger peers. The findings come from more than 10 years of self-reported data that detail personnel, data-processing, legal, accounting/auditing, and consulting expenses tied to regulatory compliance.
The study found statistically significant gaps in four of five cost categories:
- Personnel: Smallest banks devoted 11%–15.5% of payroll to compliance, versus 6%–10% at the largest
- Data processing: 16.5%–22% of budgets at small banks, compared with 10%–14% for larger institutions
- Accounting/auditing: Small banks spent 5 to 17 percentage points more
- Consulting: The widest gap—50%–64% of small-bank consulting costs tied to compliance compared with 19%–30% for the largest banks
Only legal expenses showed inconsistent differences.
CSBS economists say the decade of data confirms that regulatory costs function more like fixed overhead, meaning they don’t scale down for small institutions—forcing them to spread major mandates across far fewer employees and smaller balance sheets.
Regulatory Growth Driving Consolidation
The report links these pressures to a post-2008 regulatory environment that expanded reporting, capital, and consumer-protection requirements. While larger banks absorbed these costs, many small banks merged, limited product offerings, or exited certain lines of business. The number of U.S. community banks has shrunk significantly since 2010, and new bank formation remains historically low.
The authors argue the evidence strengthens the case for proportional regulation, including streamlined exams, reduced reporting requirements, or exemptions for well-capitalized, low-risk community banks. Without such changes, they warn, rising compliance burdens will continue to accelerate consolidation and reduce access to credit in rural communities.
While the study’s self-reported data cannot prove causation, CSBS stresses the consistency of results across thousands of survey responses. The new research, they say, finally puts quantitative weight behind community banks’ longstanding claims that one-size-fits-all regulation threatens the sector’s diversity and long-term viability.