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Federal Reserve Study: The Smallest Missouri Banks Pay More for Regulatory Compliance

JEFFERSON CITY – The smallest community banks in Missouri may be dedicating an equivalent of 18 percent of their workforce to comply with regulations that govern how they operate.

The dollar amount of this expenditure would be $226,000 for a typical bank with less than $100 million in assets. For all 266 community banks currently headquartered in the state, the collective cost would exceed $160 million annually. A community bank is defined as having less than $10 billion in total assets.

The cost estimates were calculated by researchers at the Federal Reserve Bank of St. Louis using the responses of more than 500 community bankers to a national survey conducted by the Conference of State Bank Supervisors (CSBS) in 2015, 2016 and 2017. The Missouri Division of Finance (MDOF) is a member of CSBS and administered the survey statewide.

A key component of the estimation procedure extends from a question on the survey concerning the percentage of bank operating expenses attributable to compliance activities. This nationally-determined percentage was applied to operating expenses at community banks in Missouri to estimate statewide dollar costs of compliance. The number of full-time equivalent employees devoted to compliance was estimated by applying the same percentage to statewide data on bank personnel expenses.

The CSBS survey serves as the basis for a recently-released report by the Fed on economies of scale in satisfying regulatory obligations. From this perspective, estimated compliance costs at community banks with between $1 billion and $10 billion in assets would represent the equivalent of 10 percent of a bank’s workforce – somewhat less than half the previously mentioned 18 percent incurred by those with under $100 million in assets.

“Since 1990, the number of banks in the United States with assets under $100 million has dropped 87 percent,” said Lee Keith, commissioner, Missouri Division of Finance. “Though not completely due to the high regulatory costs, it has contributed significantly to the problem.”

Community bankers voiced similar concerns about the regulatory costs in interviews conducted by the MDOF to supplement the national survey results. They said costs were highest for the Bank Secrecy Act, overdraft rules and mortgage rules enacted under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The CSBS survey, associated interviews with Missouri bankers and the Fed report on compliance costs are all available at

About the Missouri Department of Insurance, Financial Institutions & Professional Registration

The Missouri Department of Insurance, Financial Institutions and Professional Registration (DIFP) is responsible for consumer protection through the regulation of financial industries and professionals. The department’s seven divisions work to enforce state regulations both efficiently and effectively while encouraging a competitive environment for industries and professions to ensure consumers have access to quality products.