New bank rules can carry a heavy burden for smaller banks. M&T, a regional bank in Buffalo, saw its compliance costs rise to over 10% of its 2011 income.
The benefits are less clear for regional and community banks. Many of the new regulations have hefty, fixed startup costs, which disproportionately impact smaller institutions. For instance, Buffalo's M&T Bank estimates that its annual compliance costs have nearly doubled, from $50 million in 2003 to $95 million in 2011, more than 10% of its 2011 earnings. Similarly, at a recent conference at the St. Louis Federal Reserve, one state bank survey reported that compliance costs are eating up 10% to 15% of community-bank earnings. The irony is that most small banks did not make dodgy mortgages or hold the high-risk derivatives that created losses for the big banks.
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