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Dissertation/Thesis Abstract

A Quantitative Examination of the Relationship between the Cost of Regulatory Compliance and the Profitability and Efficiency of Community Banks
by Fitzsmmons, Brendan D., Ph.D., Capella University, 2018, 119; 10744618
Abstract (Summary)

Several commentators argued that the regulatory requirements imposed on community banks over the past 15 years placed an inordinate impact on these entities when compared to their larger counterparts. Specifically, the literature questioned the effect of regulatory costs on Return on Equity, Return on Assets, and Efficiency Ratios in community banks. The communities and small businesses that these banks serve are negatively impacted if these banks continue to disappear due to failure or the result of increased mergers and acquisition activity. This study sought to determine whether a statistically significant correlation existed between regulatory costs, as defined by the combined cost of legal fees, audit expenses, consulting costs, data processing costs, and salary and benefit costs which could be ascribed to compliance personnel, the ROE, the ROA, and the Efficiency Ratios of 21 community banks in the State of Maryland. Based on the results of the correlation analysis, such a correlation does exist. A regression analysis was performed on the independent variable, the cost of regulatory compliance, and the three dependent variables, ROE, ROA, and Efficiency Ratio, for each bank. Of the 63 analyses performed (21 banks with three independent variables) a statistically significant result (where p < .05) was found in all but two instances and in one of those two, p = .053. The implications of this study weighed heavily on the nature of the governance of community banks by legislative and regulatory authorities. The relationship between the regulator and the regulated must be reexamined within the context of community banks. The ability of these institutions to continue to serve often rural communities may depend on how these authorities react to the regulatory burden imposed on community banks in this country.

Indexing (document details)
Advisor: Verma, Shailendra
Commitee: Gregory, Elaine, Herr, John
School: Capella University
Department: Business and Technology
School Location: United States -- Minnesota
Source: DAI-A 79/07(E), Dissertation Abstracts International
Subjects: Finance, Banking
Keywords: Community bank, New governance theory, Regulatory cost
Publication Number: 10744618
ISBN: 978-0-355-62194-5
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