Compliance costs at some of the nation’s top banks have grown significantly faster than net income, according a survey of 20 of the top banking and thrift institutions released today by the Deloitte Center for Banking Solutions.
Compliance spending grew 159% on average from 2002 to 2006, according the report, Navigating the compliance Labyrinth: The Challenge for Banks.
The Deloitte Center for Banking Solutions is part of accounting firm Deloitte & Touche USA LLP, both headquartered in New York.
As a percentage of net income, compliance spending increased to 3.7% in 2006 from 2.8% in 2002, the report found.
Banks spent an average of $83.5 million on compliance in 2006, an 86% increase from $44.8 million in 2002.
“Senior bank executives feel that compliance costs have drastically increased in recent years, and will likely increase further given the recent focus on mortgage lending practices,” Don Ogilvie, the independent chairman of the Deloitte Center for Banking Solutions, said in the release about the report.
Banks could mitigate rising compliance costs by focusing more on reducing redundant processes and investing in more technology, the report concluded.
Banks have managed increased compliance obligations by adding people rather than leveraging technology and improving processes, Mr. Ogilvie said.
“Banks must re-examine their approach to resource allocation,” he said.
Sixty percent of compliance spending went to compensate staff, while only 18% went to capital expenses such as information technology systems, the report said.