The regulatory burden in the banking industry has continued to escalate in 2013. The annual operational cost of compliance related to recent regulations such as the implementation of Basel III have placed enormous pressure on both small and larger banks in the United States.
Costs not only encompass process support, IT support, training and examination and assessment, but personnel costs for employees who are not dedicated to the compliance function, as well as software capital expenditures.
An Intelligence Unit white paper published by The Economist stated:
“Compliance-related controls are by nature costly, and a manually intensive environment multiplies those costs. In the absence of uniform and integrated processes, unnecessary controls and low risk thresholds can result in excessive alerts.” ¹
The Banking Compliance Index (BCI) evaluates the incremental time and cost a typical financial institution will incur to comply with a quarter’s new regulatory requirements and the compounding challenge of the enforcement environment. The BCI data sources include; CFPB, FDIC, FED NCUA OCC. The index is calculated using an average size institution of $350 million.
A recent Banking Compliance Index Infographic reveals that regulatory compliance cost the banking industry more than $296 million dollars to address the Q3 2013 regulatory changes alone. Based on salary, the incremental cost for our WIB member institutions averaged $46,750 in that period.
As regulatory pressures in the industry continue to escalate, these figures suggest that community banks really need to improve upstream lending and account opening processes.
1. Economist Intelligence Unit white paper “Strengthening governance, risk and compliance in the banking industry”, 2009.
Western Independent Bankers 