"We wish we could abate this constant flow of compliance information," Perdue said during Continuity's April 9 online quarterly compliance webinar, "but Washington isn't doing us any favors."

Moreover, Perdue said in a recent interview, Washington regulatory agencies are creating a compliance environment so burdensome that smaller financial institutions are abandoning lines of business just because they can't keep up with the time and cost it takes to comply with rules governing those businesses.

Hundreds of community banks and credit unions, for example, abandoned residential mortgages after the Ability to Repay and Qualified Mortgage Standards amendment was added to the Truth in Lending Act, Perdue, who is also a former Federal Reserve examiner, said. Other business lines have also taken hits in a regulatory firestorm that threatens small institutions' very existence, she added.

"Whether it's a bank or a credit union, increasing cost pressures against already-thin margins and heavy competition have left even those institutions that didn't get shut down with few options other than to merge or die," she explained.

The numbers tell the tale, Perdue said. Between 2005 and 2015, a ten-year period spanning the recent recession and continuing recovery, first quarter figures show a drop in the number of community financial institutions that is eerily similar for both the bank and credit union industries.

In Q1 2015, there were 6,509 FDIC-insured banks, compared to 8,976 such institutions in Q1 2005, a drop of 37.9%. During the same period, the number of credit unions totaled 6,402 institutions during Q1 2015, compared to 8,801 credit unions during the same period in 2005, a drop of 37.47%.

Continuity created the BCI in 2013 and does not have aggregate figures to correspond with the past 10 years. In the eight quarters since the index's establishment, the aggregate BCI was 13.91, meaning that financial institutions would have had to add almost 14 additional employees to handle the 549 regulatory items and/or deal with the 1,285 enforcement actions taken against credit unions and community banks since Q2 2013.

The majority of the credit unions that closed or more likely were merged out of existence were smaller asset-sized institutions that couldn't cope with rising competitive pressure and operational costs, Perdue said. Larger banks and credit unions are better equipped to manage the rigors of rising compliance demands, whereas within smaller institutions, compliance personnel share those duties with other responsibilities, creating an inequitable balance of resource expenditures for roughly the same level of obligations, she added.

"Larger institutions can scale effectively and spread compliance costs across more delivery channels and richer revenue streams," Perdue said. "Size absolutely matters, and common sense can tell even the folks in Washington that [larger and smaller] entities cannot handle the regulatory impacts in the same way."

State-level statistics show a similar decline in the number of small credit unions, according to Sharon Lindeman, vice president of regulatory activities for the California and Nevada Credit Union Leagues.

Read more: Regulations were a key factor in mergers …

In 2013, California saw 18 credit union mergers, and in 2014 there were 14 mergers, Lindeman said. Of those merged institutions, 12 had less than $50 million in assets, and regulatory burden was identified as a key factor driving those mergers, she added. The cost of compliance, she added, is a huge factor in any discussion about a credit union's survival.

A 2014 CUNA survey bears this out. According to the survey's results, more than 50% of respondents identified regulatory burden as one of the top three concerns facing credit unions. The resources spent addressing those concerns are disproportionate when it comes to smaller credit unions, Lindeman added.

"Everyone recognized that [compliance issues] are here and are definitely a burden," Lindeman said. "A lot of regulations are driven on the products offered, but if credit unions don't offer services and products relevant in today's world, they're not going to succeed, either."

Officials at the NCUA said they do not agree with either Perdue's or Lindeman's assessment. While the agency recognizes that the cost of compliance may be formidable, it's just one more operating expense for credit unions to consider, according to Bill Myers, director of the NCUA's Office of Small Credit Union Initiatives, which fosters development and service delivery for small institutions.

Moreover, Myers added, merger activities have declined at a steady pace over the past 30 years, with a slight slowdown over the past decade. The issue is really one of sustainability, and the fewer services the credit unions offer, the lower their compliance burden becomes, he added.

"There is some disagreement in the industry about how the asset size makes for a sustainable credit union," said Myers, the former president/CEO of $87 million Alternatives Federal Credit Union in Ithaca, N.Y. "There are a hundred if not a thousand decisions about the growth track credit unions have to take to become sustainable."

From an academic standpoint, credit unions that hand-post entries and don't offer cash services have few rules to comply with, Myers said. The more services a credit union chooses to offer, the more its compliance burden will increase, but compliance itself is not the crux of the problem.

"Compliance costs are not driving those decisions, its overhead costs," Myers said. "And overhead needs to include compliance costs for the products and services a credit union offers."

The NCUA itself has taken several steps since 2011 to reduce the compliance burden on smaller, less complex credit unions, according to agency spokesman John Fairbanks. Those changes included creating an expedited exam process for well-run credit unions with less than $30 million in assets and CAMEL ratings of 1, 2 or 3, and exempting two-thirds of credit unions from the rules on risk-based net worth and interest-rate risk management.

Fairbanks also noted that the agency expanded the regulatory exemption by raising the asset ceiling from $10 million to $50 million, with another increase to $100 million proposed earlier this year.

Ultimately, it's up to the credit union how complex it wants to become, and then handle the occurring overhead costs, including compliance costs, that come with the territory.

"The agency is saying it's your credit union, so take your swing at the ball," Myers said. "We're not looking at how you play your game, we're looking at the end game."

Myers pointed to services offered by leagues and private vendors that provide compliance services for small credit unions as a way to reduce costs and increase efficiencies when it comes to meeting compliance needs. Credit unions' cooperative nature allows them to share resources, compliance consulting and other forms of shared services in order to help lower costs.

In the end, smaller, simpler credit unions can better manage compliance costs by offering fewer services, Myers explained. For the California and Nevada Leagues' Lindeman, however, such a simplistic answer does not serve the industry well.

"Every dollar spent on compliance doesn't go back to the member in the form of more services and lower rates and fees," Lindeman said. "If small credit unions are being regulated out of business, the real losers are the consumers and small businesses they serve."