Banks spend more on operations and information technology than human resources, compliance or legal expenses, according to a report released by the Consumer Financial Protection Bureau. The November 22 report looks at the operational effects of certain regulations on seven banks with an asset range of less than $1 billion to greater than $100 billion.
In those seven banks, operations and IT expenses accounted for 25 percent to 62 percent of compliance costs with a median cost of 55 percent. The study also cataloged human resources, compliance, retail, marketing, audit and legal expenses.
The study also found that the two smallest banks had higher compliance costs, as a percentage of estimated total retail deposit operating expense, than the five largest banks. The CFPB, however, declined to draw any conclusions about possible economies of scale because of the study’s small sample size.
When sorted according to regulatory requirement, most costs came from complying with regulations on authorization, error resolution, disclosures and advertising.
The CFPB interviewed about 200 employees and executives for the study. These interviews focused on identifying the banks’ operational activities and processes to comply with certain regulations that apply to retail checking accounts, savings accounts, debit cards, and overdraft services. Most of these rules have not changed for several years, which allowed the CFPB to calculate ongoing compliance costs rather than one-time implementation costs.
The rules considered are Regulations DD (implementing the Truth in Savings Act), E (Electronic Fund Transfer Act), P (Gramm-Leach-Bliley Act financial privacy requirements), V (Fair Credit Reporting Act), and relevant sections of the Fair Credit Reporting Act.
The CFPB chose to limit the study to the seven banks’ costs for compliance with these specific regulations “in the expectation that depth over breadth would create findings of lasting value.” The CFPB also said the narrower scope allowed the study to distinguish incremental from baseline costs, cover all major sources of compliance cost, and measure those costs consistently within and across participating institutions.
The study looked at two banks with less than $1 billion in assets, two banks with between $1 billion and $10 billion in assets, two banks with between $10 billion and $100 billion in assets and one bank with more than $100 billion in assets. Because of the small number of participants, results are given as a range of percentages, a median percentage or both.