- Expert quote: “Some of the regulations that we were really concerned about have been put on hold,” one Utah banker said.
- Supporting data: Community bankers said in a survey that 24.9% of their compliance costs were attributable to anti-money-laundering efforts, while 22.5% of the costs were attributable to consumer protection measures,
- Forward look: The results suggest that the community banking sector expects a continuation of the regulatory relief measures unveiled since the start of the second Trump administration.
ST. LOUIS — Community bankers are substantially less concerned than they were in 2024 about the risks to their business from regulation, according to a new survey of banks with up to $10 billion of assets.
The changes in the list of top risks facing the community banking sector come less than a year into the second Trump administration, which has been pursuing a deregulatory agenda.
Only 28.4% of the community banks surveyed by the Conference of State Bank Supervisors said that regulation represented an “extremely important” risk, down from 44.1% last year.
“Some of the regulations that we were really concerned about have been put on hold,” said Mark Packard, president of Provo, Utah-based Central Bank, in comments released with the survey results.
As an example, Packard pointed to the Trump-era Consumer Financial Protection Bureau’s decision to
“This is big for us because this is an onerous regulation for the bank and for our small-business customers,” Packard said. “Our customer base is very independent, and they don’t like to feel like they’re being tracked. They don’t want to have to disclose more than what is being required of them.”
The survey results were released Tuesday during the Community Banking Research Conference at the Federal Reserve Bank of St. Louis.
The Conference of State Bank Supervisors surveyed 268 community banks, nearly 80% of which have less than $1 billion of assets. The survey was distributed to the banks between April and July 2025.
On Monday, the Office of the Comptroller of the Currency announced plans to
The OCC’s promise of lighter-touch regulation for community banks could serve to persuade some state-regulated institutions to switch to federal charters.
But the Conference of State Bank Supervisors, a trade association whose members include state banking regulators, is also making the case that regulation of community banks is too onerous in many areas.
“Our research confirms what bankers in the audience already know — community banks shoulder a disproportionately high cost of compliance compared to larger institutions,” CSBS President and CEO Brandon Millhorn said at the conference in St. Louis on Tuesday. “Supervisory creep continues to snare community banks in regulatory frameworks meant for more complex regional or global banks.”
Millhorn took issue with asset-based regulatory thresholds that do not get adjusted for economic growth. And he argued that concentration-based limits — whereby regulators, seeking to manage risk, put handcuffs on a bank’s ability to focus on a particular specialty — can be problematic when they’re applied in a broad-brush manner.
Millhorn also said that regulators should reexamine their frameworks for determining compliance with regulations that cover information technology, money laundering and the Community Reinvestment Act.
“Are we prioritizing process in these areas over core financial risks? What financial stability and consumer protection risks are we seeking to mitigate? Are the associated benefits clear, and do they outweigh the costs of the regulatory mandates and supervisory expectations?” Millhorn asked.
Federal Reserve Bank of St. Louis
Specifically with respect to Bank Secrecy Act/anti-money-laundering compliance, Millhorn said: “We must balance national security and law enforcement demands against the billions of dollars that financial institutions spend on BSA/AML reporting and compliance.”
“It is incumbent on the federal government — which imposed these requirements on financial institutions — to periodically ensure that the BSA/AML framework has not become a strict liability straitjacket on innovation and growth in our community banks.”
In its survey of community bankers, the respondents said that 24.9% of their compliance costs were attributable to anti-money-laundering efforts, 22.5% of the costs were attributable to consumer protection measures, and 10.2% involved Community Reinvestment Act compliance.
The largest chunk of compliance costs, 27.2%, was attributed to safety and soundness regulation.
Other survey findings
The CSBS survey found that community banks had little appetite for cryptocurrency.
Some 91% of the respondents said they don’t offer crypto services and don’t plan to do so in the next year, while 7.9% said that they do plan to roll out crypto services in the next 12 months.
Meanwhile, 46.7% of the respondents said that they see promise over the next five years in the use of AI for customer interactions. And Lloyd Hamm, Jr., president and CEO of Massachusetts-based River Run Bancorp, said that he foresees use of AI in commercial credit reviews.
“AI could perform 80% to 90% of that work, leaving the credit analyst to review for accuracy and validity,” Hamm said in remarks released with the survey. “This could improve credit quality, enhance problem identification and significantly reduce the cost of annual reviews.”
The survey also confirmed the recent uptick in interest in mergers and acquisitions that has been evident from the increase in the number of deals announced this year.
Some 12.4% of the respondents said that they had received and seriously considered accepting an acquisition or merger offer in the previous 12 months, up from 6% in the 2024 survey.
In terms of community bankers’ top concerns, a smaller percentage expressed worry about the cost of funds. The results came on the heels of interest-rate cuts by the Federal Reserve, which have enabled lenders to reduce their cost of funds, and amid anticipation of additional future cuts this year.
But cybersecurity remained high on the list of community bankers’ major concerns. And risks related to net interest margins and core deposit growth also continued to cause worry.
Some 41.8% of the respondents said that net interest margins were an “extremely important” risk, down slightly from 48.5% in 2024. And 42.2% of the bankers said that core deposit growth was an “extremely important” risk, roughly level with last year’s results.
Jaret Seiberg, a policy analyst at TD Cowen, said the survey results offer insights into where supervisors may focus their attention in the coming year. “To us, that means a continued look at how smaller banks make money given concerns over NIMs and deposit growth,” Seiberg said in an email.
He also argued that community bankers have not become less concerned about the burden of complying with regulations because they have already seen dramatic shifts, but because they are expecting Trump administration regulators to make changes. “Next year’s survey should offer insight into whether bankers have seen regulatory burden improve,” Seiberg said.