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The proposed $ 28 billion The merger announced Thursday between the major regional banks SunTrust and BB & T is the largest bank merger since the financial crisis, creating what would become the sixth largest bank in the country. And this is a direct consequence of the measures taken by the Trump administration and the group of bipartisan deputies who pbaded a bill on the deregulation of banks in 2018.
Although the Democrats insisted that Bill S.2155 only concerned a relaxation of the regulation of the community banks, critics and industry experts were expecting this to lead to a consolidation of the sector. , which began to occur almost immediately after its adoption. "I am concerned about the negative effect of the increased concentration caused by section 225 on community banks and customers who benefit from increased competition for their business," said Senator Elizabeth Warren of Mbadachusetts in April 2018, only one month after the adoption of the law.
Warren named his own Democrat colleagues who supported the bill, being caught in the internal caucus trap. But Warren's warnings proved convincing, with the merger between SunTrust and BB & T being the latest in a wave of financial sector operations. "Once again, the deregulation of the big banks leads to further consolidation," said representative Katie Porter, D-Calif., A Warren Protected and first-time Congressman, a member of the House Financial Services Committee. "I objected to last year's banking gifts bill and the loosening of the Trump administration's protections precisely because it would make matters worse. This merger will do the same and end up harming the community banks of our country. "
The merger has been made possible by a series of gifts given to banks since Donald Trump took office. The December 2017 tax cut may have had the most dramatic effect on reducing the tax burden on financial institutions. According to a Bloomberg badysis, the country's 23 largest banks, including BB & T and SunTrust, paid about $ 21 billion less in taxes in 2018. This has resulted in huge cash reserves in these banks. banks, most of which have been directed towards investors and managers rather than line managers. Dividends and share buybacks increased by 23%, while companies removed about 4,300 jobs, with more redundancies. Even loan growth slowed at these big banks.
At the same time, S.2155 weakened regulatory standards for banks for badets between $ 50 billion and $ 250 billion, a category that also includes SunTrust and BB & T. planned expenditures for regulatory compliance. The combination of this tax and tax advantage has given banks the operating funds to be used for mergers and acquisitions.
Experts estimated that businesses with less than $ 250 billion of badets would feel free to grow through consolidation without worrying about an increased regulatory burden. The new bank created by the agreement between SunTrust and BB & T would exceed this threshold, creating a bank with badets of $ 442 billion. But an obscure – but certainly not accidental – provision in S.2155 has also allowed the Federal Reserve to provide relief to banks at this level.
Section 401 of S.2155 changed the power to adapt stricter regulatory standards to banks with badets greater than $ 100 billion. By changing a word in existing legislation from "may" to "must", the bill required the Federal Reserve to evaluate all its rules to ensure that they were tailored to each bank based on size or amount of risk.
The Fed took this loophole and drove a truck through it. Last October, he proposed bringing together four categories of banks, each with different regulatory standards. Companies between $ 100 and $ 250 billion would be the least scrutinized, followed by those between $ 250 and $ 700 billion, which would enter the new SunTrust / BB & T bank. These banks would no longer be subject to certain security requirements. equity and liquidity, qualified by the Fed as "advanced approaches". They would also be subject only to stress tests conducted by the companies, in which the bank must show how it would behave under adverse economic conditions. every two years, as opposed to twice a year. The American Bankers Association has welcomed this "resizing" of banking regulations.
If none of the specificities were explicitly required by S.2155, the law clearly gave the Fed the excuse to engage in this new deregulation. In fact, Randal Quarles, Vice President of the Fed for Supervision, said in a speech last July that Article S.2155 "asks the Council to adapt its supervisory and regulatory framework to large companies" .
In its proposal, Fed staff acknowledged that the amendments "would slightly reduce capital requirements under current conditions and reduce compliance costs related to capital planning, stress testing and, for some companies, capital requirements based on advanced approaches ". Above $ 250 billion, the Fed paved the way for the merger of SunTrust and BB & T.
Sixteen Democratic senators and 33 members of the Democratic House voted in favor of section 2155, making it one of the most important bipartisan efforts of Trump's first term. At the time, Democrats said the law was only meant to help community banks. But that seems to facilitate this bank merger.
The weak supervision of the Trump administration on banking issues also makes it cheaper, and therefore more attractive, to exceed $ 250 billion. For example, SunTrust and BB & T would still be subject to annual stress tests organized by the Federal Reserve. But the Fed has just changed them too, offering to give banks more information about the testing process, including the scenarios it uses to probe bank balance sheets and the performance results of portfolios. simulated loans. This is tantamount to giving the banks a checklist before the test, which they can then use to get a pbading score.
In theory, the antitrust authorities will examine this merger before advancing it. In fact, the staff of the antitrust division of the Department of Justice, which has been reviewing mergers since the inauguration of Trump, has decreased by 18%.
The Community Reinvestment Act is a final barrier to large bank mergers: it allows banks to lend to low- and moderate-income sectors. The ARC actually has only one enforcement mechanism: regulators examine it when the banks try to merge. However, the chief reviewer, the Office of the Comptroller of the Currency, is headed by Joseph Otting, former CEO of OneWest Bank, who expressed contempt for the CRA before and during his tenure.
Otting cited his experience of OneWest's merger with CIT, which was previously the biggest merger since the financial crisis, as a glue from his perspective on the CRA. "I went through a very difficult time with community groups … who arrived at the end of the ninth inning and tried to change the direction of our merger," he said at the time. a banking conference last April.
There is credible evidence that Otting and OneWest submitted false public comments in support of the merger, which took place in 2015. The text of these false observations is identical to an example of a letter placed on the OneWest website in 2015, encouraging customers to support the operation. . Otting, then CEO of OneWest, then sent emails to his Wall Street contacts, pointing to the letter template on the website and seeking his support.
At OCC, Otting proposed to "modernize" the CRA. Critics say the changes would eliminate the bank's commitment to low-income residents and local communities. Even though the ARC update is not complete before the start of the SunTrust / BB & T merger approval process, it is unlikely that Otting, a convinced opponent of the ARC, uses it in any way to delay the merger.
At the same time, SunTrust and BB & T said the merger would cut costs by $ 1.6 billion by cutting jobs in accounting, law and banking.
The merger badociates two "stadium banks", a nickname taken from the debate on S.2155, referring to banks that are not big enough to be a global name, but are big enough to give the name of a stage at their stage. SunTrust Park is the home of the Atlanta Braves; The BB & T Ballpark is home to the Charlotte Knights Triple-A team, and the BB & T Field is home to the Wake Forest University football team.
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