Smaller Banks Have Greater Compliance Burden, According to St. Louis Fed Report

Regulatory relief targeting the smallest community banks could have the greatest cost-savings benefit, according to a recent report from the Federal Reserve Bank of St. Louis. The report examined three years of the annual community bank survey conducted by the Conference of State Bank Supervisors, compiling responses from more than 1,000 banks from 2014 through 2016.

Compliance costs across all banks in the three-year period averaged about 7 percent of their non-interest expenses, according to the findings. But the burden was much greater for smaller banks with assets of less than $100 million. Their compliance costs averaged nearly 10 percent, while expenses for banks with assets of $1 billion to $10 billion averaged just over 5 percent.

“This suggests that any cost-saving benefits of regulatory reform would be concentrated among the smallest banks within the community banking industry,” the report stated.

The implied dollar amount for regulatory compliance totaled $5.4 billion in 2016, representing 24 percent of community bank net income. Regardless of size, the amount a community bank spent on its compliance did not seem to have an impact on its regulatory performance, the report noted.

Despite the burden, overall compliance costs may be moderating for community banks. The costs fluctuated from 5.5 percent of noninterest expenses in 2014 to just over 8 percent in 2015 and dropped slightly to 7.7 percent in 2016.

This moderation is likely due to banks and regulators adjusting to recent regulatory requirements. For example, mortgage-related regulations, which make up one-third of all regulatory costs for the surveyed banks, dropped slightly in 2016 after the final implementation of mortgage rules under the Dodd-Frank Act. And data processing expenses also dropped in 2016, which suggests that community banks experienced one-time start-up costs.

Overall, personnel expenses made up the greatest cost of the five categories surveyed, accounting for two-thirds of total compliance costs.

The Federal Reserve System and the Conference of State Bank Supervisors release findings from the national survey of community bankers each year at the annual Community Banking in the 21st Century Research and Policy Conference held at the Federal Reserve Bank of St. Louis. For more about the conference, visit

Published in Bankers Digest, May 7, 2018