Regulations Can Create ‘Sticky Blobs’

In the movie The Incredibles, a computer-animated villain uses dozens of weapons to slow down and otherwise stymie the lovable Mr. Incredible.

One of the most memorable is a bank of cannons that fire heavy, sticky blobs. When one blob lands on our hero, it hardly slows him down. Several in a row become a sticky annoyance. But once the heavy pelting begins, he's immobilized.

According to the Filene Research Institute's newest study, Only Up: Regulatory Burden and Its Effects on Credit Unions, the flurry of new and revised regulations have created a similarly sticky annoyance for credit unions in both the United States and Canada.

Because compliance has a high fixed cost component, this new regulatory regime seems to be generating artificial economies of scale. Not surprisingly, the research revealed a very strong negative relationship between the size of a credit union and the relative intensity of its regulatory compliance costs.

For example, in Canada, credit unions in the largest quartile bore one-fifth of the comparable costs of those in the smallest quartile. In the U.S., the difference is even starker: those in the largest quartile bore just one-tenth of the regulatory compliance costs borne by those in the smallest quartile.

To put into context what this regulatory shift means for credit unions, the study's authors estimated that between 2007 and 2012, the number of full-time equivalents devoted to regulatory compliance increased on average by 70% in the U.S. and by 94% in Canada. Both of these figures outpaced normal staffing increases by at least a factor of three.

Measuring regulatory burden is like identifying the sticky blobs. It's a first step. The second step is ensuring the best outcome for consumers require treating organizations with different characteristics in different ways.

Read more in Filene's report, Only Up: Regulatory Burden and Its Effects on Credit Unions.

The report is the latest in a series of exclusive content from Filene available to CU Times readers. Check out these other reports:

• Credit Union Implications of Living Trusts

• Gen Y Personal Finances: A Crisis of Confidence and Capability
• Impacts of Mergers on Credit Union Costs: 1984 – 2009
• Channel Delivery for Tomorrow
• From Presence to Purpose: Developing Social Media Strategies and Metrics for Credit Unions
• Improving Social and Environmental Sustainability: A Credit Union Assessment and Comparison
• Mortgages and Credit Union Performance: 1980-2011
• Future of Payments: Credit Union Implications – A Colloquium in Salt Lake City
• Asset-Liability Management: Theory, Practice, Implementation, and the Role of Judgment

George Hofheimer is the chief research and innovation officer at the Filene Research Institute.  He can be reached at 608-852-4632 or georgeh@filene.org.