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How Do You Measure the Enormity of Someone’s Burden?

By: Kari English

For those in the financial services industry, quantifying the amount of regulatory burden community banks are feeling has been a rather nebulous task. Everyone is aware of the tremendous pressure community banks are under as a result of the Dodd-Frank Act, but until recently, it seems no one had a scale or process in which to actually measure the burden. After all, how do you quantify a burden — especially when there is more yet-to-be-official burden to come?

In late 2012, the Government Accountability Office and the FDIC both concluded that it was impossible at that time to quantify the costs that community banks will incur as a result of Dodd-Frank. The most tangible information regarding regulatory burden was from the American Enterprise Institute, which found that “anecdotal information suggests that compliance costs at small banks have already significantly increased in recent years.”

But there have been some solid efforts to quantify reg burden this year. In a May 30 economic policy paper, the Federal Reserve Bank of Minneapolis took a stab at quantifying it and found that profitability reductions resulting from regulatory burden could cause a third of institutions in the smallest asset tiers to become unprofitable. According to the Fed study, adding just two employees, such as compliance officers, results in an average 45 basis point reduction in profitability.

There are also two companies that have actually found ways to quantify the burden. Banking compliance and technology company Continuity Control announced in July the results of its second-quarter Banking Compliance Index. The data showed the regulatory burden remained at an extreme high, up 117 percent since Q2 of 2012.

The other company, Wolters Kluwer Financial Services, which is a provider of compliance, risk management, finance and audit solutions and services, recently released a Regulatory & Risk Management Indicator. The indicator, which started with a baseline score of 100 in January when Wolters Kluwer surveyed nearly 400 U.S. banks and credit unions, rose to a score of 136 when more than 430 respondents provided their feedback at the end of April.

Although these efforts tell us something we already know, it is nice to now have proof to back it up. To learn more about these efforts to quantify the regulatory burden affecting your community bank, click on the link below.

Regulatory Burden Information

Kari English is senior editor of BankNews.

Copyright (c) October 2013 by BankNews Media



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