CFPB Recognizes Cost Burden of Compliance for Small Banks

A new study by the Consumer Financial Protection Bureau alludes that small banks and financial institutions spend relatively more to comply with federal regulations than their bigger peers, especially when it comes to third-party vendor costs. For instance, the CFPB found that two institutions with less than $1 billion in assets had compliance costs that comprised up to six percent of their total retail deposit operating expense, whereas at five banks with more than $1 billion in assets, those costs were two percent or less.

Though the study only surveyed seven companies, the CFPB found that compliance function costs represent 5-31 percent of the total in-scope regulatory compliance costs. But that doesn’t mean that small companies are off the hook when it comes to compliance.

“Operational effects matter more to the extent they suggest how a specific regulation might affect product pricing and availability or market structure and competition,” the Bureau stated in the report. “Moreover, these types of effects on a market can be understood properly only in the context of the fundamental benefits of regulation to consumers and the marketplace.”