The Federal Reserve Bank of St. Louis conducted a study on compliance costs for banks and how that impacts compliance performance. The study found that compliance costs averaged 7 percent of noninterest expense over the period studied. Personnel expenses accounted for the majority of these expenses, followed by data processing, accounting, legal and consulting expenses.

Economies of scale exist in compliance, i.e., relative compliance costs increase with decreases in bank size. Banks with assets of less than $100 million reported compliance costs that averaged almost 10 percent of noninterest expense, while the largest banks in the study reported compliance costs that averaged 5 percent. In other words, the compliance cost burden for the smallest community banks is double that of the largest community banks.

Significantly, the study found that within a given size category, regulatory performance ratings were independent of the amount spent on compliance. This suggests that compliance performance is based on factors other than what is spent on it.

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