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New Regulatory Index Gauges Burden on Banking Institutions

 

April 17 - Continuity Control has announced the launch of its Banking Compliance Index, a quarterly composite index that empirically measures the regulatory burden on financial institutions across key leading and lagging indicators.

The index was designed to equip banking professionals, regulators and legislators with detailed data-driven metrics analyzing the impact of new and existing regulations on financial institution resources, specifically budget and employee headcount. Regulatory changes in just the first three months of this year will cost community banks over a quarter of a billion dollars, according to the BCI.

The debut release of the BCI comes at a crucial time as financial institutions and government agencies grapple with a continual barrage of new regulations and absorb the nearly 800 regulatory changes that have been introduced over the last five years. The cumulative effect of regulatory change since 2008 has caused significant increases in compliance costs — in both time and money. According to the FDIC Community Banking Study conducted in late 2012, it was determined that the industry has no way to measure the cost of regulatory changes on financial institutions.

Last month, Financial Institution Subcommittee Chair, Shelley Moore Capito, voiced the need for more informed decision-making, saying, “I understand this is a difficult figure to quantify but we must keep up the discussion amongst policy makers, regulators, and community bankers about ways to reduce this growing burden. We need to have safely run financial institutions in our local communities, but we must ensure that the costs of compliance do not outweigh the benefits and that regulations emanating from Washington can be handled by Main Street lenders.”

Drawing on both public and proprietary data, the BCI confirms that the regulatory burden held steady at near all-time highs during the first quarter of 2013.

The index measures the additional hours expended by the typical community financial institution to effectively process the quarter’s regulatory changes. The additional hours are represented as the number of full-time employees that will be required to dedicate to this workload in order to keep the institution compliant.

During the first quarter of 2013, the BCI registered 2.35, which indicates the highest level in the past year — the most intensive financial regulatory period in history — and will require financial institutions to handle complex implementation in addition to dealing with more stringent enforcement actions from the agencies. The high number can be partially attributed to the presidential election, which temporarily stifled the introduction of new compliance rules.

The Q1 2013 BCI shows a 16 percent growth over the prior quarter to an all-time peak, which, for an average community financial institution, represents an over $37,000 cost in employee equivalents focused on managing the quarter’s aggregate burden from regulatory change and pulled away from the business of banking.

For an average size community financial institution of $350 million, the Q1 regulatory changes will require more than 1,200 hours of work to comply. This work is in the analysis, planning, policy, procedural development, training, implementation and oversight of each regulatory change, which is all in addition to the daily operations of the existing compliance and risk management functions within the institution.

“Quantifying the burden is the first step in helping bankers make more strategic decisions about compliance resource allocation,” said Pam Perdue, chief compliance strategist at Continuity Control and former federal examiner. “This is the first time anyone in the banking industry has established a consistent measurement banks and credit unions can use to gauge the total impact of existing and new regulations.”

A Systematic Approach

The BCI was calculated using a multi-variant analysis that can be weighted across different contexts and is calibrated to determine the impact on financial institutions of varying sizes, product mixes and regulatory oversight. Using leading and lagging indicators including volume, velocity and complexity of regulatory change; time expended to meet regulatory requirement(s); and supervision and the enforcement climate, the BCI’s metrics are unmatched in the industry.

The BCI employs a data-driven approach for unique insights into the depth and breadth of regulatory compliance workload impact. 

The BCI tracks:

Continuity Control

Continuity Control is the first and only team of banking compliance technology experts that have the unique analytical capabilities to quantify the regulatory burden on financial institutions.

“Financial institutions now have a way to measure and accurately plan for the aggregate regulatory burden,” said Perdue. "Bank executives that leverage the BCI metrics in modernizing their compliance management approach will gain the efficiencies they need to survive and thrive over the next two to five years."

More than 700 financial institutions attended the Continuity Control RegAdvisor Quarterly Briefing webcast on April 4 to gain in-depth information on the Q1 2013 regulatory compliance workload assessment and required actions to avoid penalties. A recording of this session is available at http://sproutvideo.com/videos/e89bd8b01f1ce4ca60?type=hd.



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