The costs of implementing regulatory changes: The Truth in Savings Act

Although the cost of banking regulation has been a controversial issue for many years, little empirical evidence is available. This study provides new evidence on the effect of the amount of required changes on start-up compl iance costs, using data from a survey of the costs of implementing the Trut h in Savings Act. The finding, that start-up compliance costs were insensit ive to the extent of changes required to implement the regulation, has impo rtant implications for regulatory policy. It suggests that a general requir ement to alter an infrequent practice may impose nonnegligible costs on all banks, not only those banks that must make substantive changes in their pr actices. This finding argues against a policy of making frequent minor revi sions in regulations. Instead, a policy of delaying revisions until some nu mber have been accumulated and then making infrequent major revisions of re gulations may reduce implementation costs by allowing banks to exploit econ omies of changing practices.