The most expensive coffee is the one you don’t buy

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People always talk about “the cost of regulation”, but what is the actual cost of regulation? That is, how much does it cost to provide the office space, training, facilities and such like for a major regulator like the European Banking Authority? Thanks to the transparency process for their contracts, we now know.

There are some interesting items in there — for example, the EBA either gets a very favourable deal from Bloomberg Finance LP, or it only has one Terminal in the building:

They actually spend more with several other data providers — there’s €56,319 with Dealogic and €102,188 with S&P. And there’s a €3,969 contract with Deloitte to train staff on how to use “financial IT systems”.

The list of contracts also includes the lease on their office, a furniture supplier, plus a lot of the “leadership training”, “skills development” and “collaborative working” consultancy arrangements that are, frankly, easy to make fun of out of context but pretty essential to running a multinational organisation. The EBA spent €96,128 on “Language training and testing” in 2024, which seems pretty good value since it has to co-ordinate with 27 national authorities.

But our attention was immediately drawn to one budget item. If you want to assess institutional strength and vitality, this is always a good place to start:

The EBA has about 250 staff. It is spending approximately sixty euros per head on coffee per year. Whatever the allowance for overhead, profit and capital costs, that can’t be more than about a cup and a half each per week. It’s possible that some coffee is included in the €209,966 contract for “catering services and supplies”, but however you cut the numbers, you can’t escape the conclusion — the coffee budget is only big enough to be supplying guests and in conference rooms.

In other words, the EBA is breaking Patrick McKenzie’s fundamental law of management:

As he says, free coffee is far from trivial. The EBA is a really important organisation, which is always being given new responsibilities (like crypto regulation and on-site inspection of data centres) by legislators who don’t always have the same enthusiasm for allocating sufficient budget. The minutes of its management board meetings regularly discuss the intensity of resource pressure; it recently raised the possibility of a 12-month moratorium on new submissions to its Q&A website, in order to clear the backlog of questions. 

This has practical consequences for the banking industry — recently, the EBA seems to have taken a pass on an extremely important decision affecting several live mergers (the “Danish Compromise”) because to do so would require “deeper and broader consideration” than they were able to give it.

It’s extremely difficult to produce first-class work in a less-than-first-class environment, and the availability of decent quality coffee is a canary in the coal mine for whether employees are being supported; it’s like the legendary “no Brown M&Ms” on rock tours. If the EBA were to multiply the amount it spent on creature comforts in general by a factor of ten, this might cost a million euros — a rounding error on a rounding error in the context of the overall EU budget. 

Since even a minor regulatory misunderstanding can have huge implications, it seems cheap at the price.