In a confirmation of what credit union executives have suspected, the cost of regulatory compliance increased drastically between 2010 and 2014, according to a CUNA-commissioned report from Cornerstone Advisors.
In 2014, the regulatory cost reached 54 basis points of assets — an increase of 15 basis points since 2010. Translated, that means that regulatory costs for credit unions were $1.7 billion more than they would have been without the changes made between 2010 and 2014 — a period that includes enactment of the Dodd-Frank Act.
"The study found that the costs that credit unions bear as a result of regulation, even when conservatively measured, are very high, and have increased substantially since the financial crisis and the Great Recession," Cornerstone concluded in the study of 53 credit unions. "The burden is particularly egregious for smaller institutions."
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The study examined the regulations that had the biggest impact on credit unions.
Cornerstone found that the cost of regulations represented 80% of credit union earnings and 5.9% of the industry's net worth.
In addition, Cornerstone said that any efficiency savings between 2010 and 2014 was significantly offset by the increased regulatory compliance cost.
The largest cost associated with rule enforcement came in the personnel category. Some 74% of regulatory costs were for personnel. The amount of time staff spent on compliance doubled between 2010 and 2014.
The effects on small credit unions far outweighed those for larger institutions, since there are fixed costs associated with compliance and larger credit unions can spread that money across a larger asset base.
Cornerstone also found that credit union executives view regulations in three ways. First, they said they believe the uncertainty and ambiguities of certain rules complicate compliance. Second, examiners interpret regulations differently from one another. Third, the steady stream of new rules requires costly management changes. Finally, the "one size fits all" nature of regulations is unfair and ineffective.
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