By, Cody Roberts
Recently, the Federal Reserve and the Conference of State Bank Supervisors produced a report titled “Community Banking in the 21st Century – 2015,” a combination of a survey and town-hall comments from 974 commercial banks with assets less than $10 billion in 39 states. While it covers many topics, the section on compliance is of special interest to smaller banks.
Here are some interesting items from this report:
– Regulatory compliance accounted for 11 percent of personnel expenses, 16 percent of data processing expenses, 20 percent of legal expenses, 38 percent of accounting and auditing expenses and 48 percent of consulting expenses, or $4.5 billion annually and 22 percent of their net income.
– There was a narrowing of the breadth of mortgage lending activities, such as one-to-four family mortgages, which were named as primary product lines by 69 percent of respondent banks, compared to 75 percent last year, a drop of 8 percent.
– Retrenchment encompasses nonqualified mortgages (non-QMs) that, under rules implemented last year by the Consumer Financial Protection Bureau (CFPB), are considered to be riskier than qualified mortgages (QMs). As a result, bankers listed regulations governing them among the most confusing and burdensome.
– The Bank Secrecy Act (BSA), along with associated anti-money-laundering provisions, was named as the most costly regulation, particularly in the areas of training and reporting.
– The regulations that bankers thought most needed modification – and were the most confusing to implement – were associated with the “ability to repay” underwriting rules, QM rules and related rules under the Truth in Lending Act.
– Bankers were also dissatisfied with the Real Estate Settlement Procedures Act (RESPA), the Home Mortgage Disclosure Act (HMDA) and Dodd-Frank. HMDA was thought to be ambiguous and RESPA was criticized for its inconsistency and immediacy. Inconsistency was also mentioned often in the enforcement of Dodd-Frank, and bankers also faulted it for its complexity and inapplicability to small banks.
Overall, bankers feel inundated by new regulations, particularly those introduced after the most recent financial crisis.
For more information and to read the full report, visit: https://www.communitybanking.org/documents/Community-Banking-in-the-21st-Century-2015.pdf