Moving Money & Combatting Compliance Tax : Supporting Community Banks and Credit Unions
With the financial turmoil of recent years, the divide between too-big-to-fail and community banks and credit unions has emerged. This divide is an important one for the recovery of the economy. This is due to the role community financial institutions play in the US economy by providing the funding sources to our Main Street businesses. Taking up the rally cry has been the Huffington Post with the Move Your Money campaign. These efforts provide a valuable service to the industry by creating a central site for people to find local banks and credit unions and move away from the too-big-to-fail crowd proactively. This move not only provides safety to the depositors, but also brings vitality and growth to these institutions to carry on the business lending functions that are critical to our economy. It is only with the growth of assets that these community financial institutions can remain a viable part of our prosperous future. But there’s another thorn in the paw of the community financial industry that needs to be addressed.
The other side of the ledger for community banks and credit unions is on the cost side of the equation. Over the past decade, and especially in recent years, the complexity and costs of compliance have accelerated rapidly. From additional regulations to increased enforcement, compliance costs have grown far faster then the organizations they regulate. So while it is critical for assets growth to occur, if the cost of compliance is growing at a faster rate then it won’t leave the community banks and credit unions in a better position. Compliance costs can really be seen as a tax, meaning burden, on the industry. Due to the dramatic impact of scale, smaller institutions are hit at a much higher rate. This is because they lack the scale to have dedicated roles for each area area to get the benefits of specialization. The compliance tax is regressive.
In looking at the parts of the compliance tax it becomes clear that it is a “death of a thousand cuts”. With so many checks, controls, validations, audits, policies and procedures, it’s no wonder it’s growing harder to keep up. Much of the complexity has come on so slowly and incrementally that it’s reminiscent of the frog and the boiling water. If you put a frog into a pot of boiling water, it jumps out. If, however, you put it into cold water and slowly raise the temperature it will boil to death. It is to this point that a recent Gartner Group paper declared that smaller financial institutions would be priced out of the market in the next 5 years. The Callahan report shows the decline of efficiency ratios in credit unions from 78% to 92% from 2004 to 2008. With this information it’s not hard to see why the Gartner analysis is spot on if nothing changes. But this is not meant to be a sad story, rather one of great promise because we think things can change.
An alliance is forming to help the industry combat the Compliance Tax and in doing so help the industry remain the bedrock that it is. The center of this movement is at www.ComplianceTax.com and its primary fixture is the ComplianceTax calculator. This calculator is there to help banks and credit unions see that the water is, or is about to be, boiling. The calculator is free to use and the site links to Continuity Control’s free platform for bankers to ask, answer and share findings around how they are attacking the compliance tax. We as an industry can each pledge to take action against the Compliance Tax by making our compliance operations simpler, more consistent and more visible. To this end, the Compliance Tax Alliance is taking 3 critical steps,
- ComplianceTax.com To provide a place to come together and focus our collective efforts.
- Free Compliance forums on Continuity Control To provide a place for us to share and work together so that we need not reinvent the wheel 16,000 times for each of us.
- Free policy repository on Continuity Control To provide free policies and procedures under open licensing so that community financial institutions may freely use, modify and share the work.
Through the two forces of growth enabled by the Move Your Money movement and cost reduction born by innovation from sharing, the community financial industry can retain it’s defining position in the US economy.
Comments
One Response to “Moving Money & Combatting Compliance Tax : Supporting Community Banks and Credit Unions”
Leave a Reply
[...] This post was mentioned on Twitter by Andy Greenawalt. Andy Greenawalt said: Move Your Money and ComplianceTax.com are two sides of the coin that will save community banking http://bit.ly/afua1P [...]