The person in charge of the supervision department of the Federal Reserve Bank of St. Louis has written an article detailing how much it costs financial institutions to be compliant.
In reaching her conclusion, the author looks at how financial institutions break out compliance expenses, and then compares that to each institution’s overall expenses.
The result is the following chart:
While smaller institutions tend to spend more of their expenses on compliance-related costs, what is also interesting is that larger institutions have seen a larger jump in their compliance costs during the past two years. For institutions with between $1 billion and $10 billion in assets, the amount spent on compliance has more than doubled, to 5.98% of total expenses, from 2.54% in 2014.
Institutions with assets of less than $100 million spend more than 10% of their total expenses on compliance-related costs, according to the author.
For the most part, as an institution increases its size, it spends less of its expenses on compliance. This dynamic is also true in the ARM industry, which is why many collection agencies have been selling to larger companies as a means of achieving economies of scale. That trend is expected to continue into 2018 and likely for as long as compliance costs continue to rise.
Perhaps a changing of the guard at the Consumer Financial Protection Bureau may slow down or halt the increase in compliance costs, but nobody is expecting the amount being spent on compliance to start dropping any time soon.