Af­ter get­ting bil­lions, bailout re­cip­i­ent poised to duck reg­u­la­tions

Bill in­tended to free up com­mu­nity banks would aid some big­ger play­ers

The Washington Post - - ECONOMY & BUSINESS - BY RENAE MERLE renae.merle@wash­

For a bank seek­ing re­lief, Re­gions Fi­nan­cial is cer­tainly hav­ing a good year.

The Alabama-based in­sti­tu­tion is on track to post near-record prof­its. Al­ready one of the coun­try’s largest banks with op­er­a­tions in more than a dozen states and more than $120 bil­lion in as­sets, Re­gions Fi­nan­cial is grow­ing at a quick pace. The Repub­li­cans’ 2017 tax bill even pro­vided an ad­di­tional boost, push­ing the bank’s ef­fec­tive cor­po­rate tax rate from about 30 per­cent to about 20 per­cent.

And with Congress rac­ing to ease reg­u­la­tions on the bank­ing in­dus­try, Re­gions could soon be do­ing much bet­ter. The Se­nate is set to vote this week to free more than two dozen mid­size fi­nan­cial in­sti­tu­tions, in­clud­ing Re­gions, from the tough­est rules put in place af­ter the fi­nan­cial cri­sis aimed at pre­vent­ing an­other eco­nomic melt­down.

Re­gions has sud­denly found it­self in the mid­dle of the de­bate over the bill, held up as an ex­am­ple of all that is right and wrong about re­draw­ing the lines for how to reg­u­late banks that many say are too big to fail.

Sup­port­ers and bank­ing lob­by­ists say the cur­rent reg­u­la­tory regime un­fairly pun­ishes re­gional banks such as Re­gions with rules aimed at rein­ing in global be­he­moths such as JPMor­gan Chase.

Cit­ing the com­plaints of a Re­gions ex­ec­u­tive that the in­dus­try spends $2 bil­lion a year com­ply­ing with reg­u­la­tions, Sen. Mike Crapo (R-Idaho), spon­sor of the bill, said on the Se­nate floor last week, “These are not just empty num­bers — there are real eco­nomic con­se­quences.”

But this dereg­u­la­tory push, which the Trump ad­min­is­tra­tion has made a pri­or­ity through­out the gov­ern­ment, comes at an in­con­ve­nient time: Un­like coal mines or steel mills, Re­gions and the bank­ing in­dus­try in gen­eral are do­ing well.

“Banks are go­ing around plead­ing poverty and beg­ging for reg­u­la­tory re­lief,” said Mar­cus Stan­ley, pol­icy di­rec­tor for Amer­i­cans for Fi­nan­cial Re­form, a non­par­ti­san ad­vo­cacy group that ad­vo­cates for tighter rules. “That is a hard ar­gu­ment to swal­low when their prof­its are so high.”

Democrats and the ad­vo­cacy group say the de­bate fails to rec­og­nize that many of the mid­size in­sti­tu­tions that would be helped by the Se­nate leg­is­la­tion fell into dire fi­nan­cial straits less than a decade ago and needed more than $40 bil­lion in tax­payer bailouts. Re­gions re­ceived $3.5 bil­lion from the cri­sis-era Trou­bled As­set Re­lief Pro­gram or TARP. It took years for the bank to re­pay the money as it strug­gled to re­gain prof­itabil­ity, in­dus­try an­a­lysts say. Reg­u­la­tors would later fine it $51 mil­lion for not prop­erly dis­clos­ing sour­ing loans dur­ing the fi­nan­cial cri­sis.

Even its chief ex­ec­u­tive, Grayson Hall, has ap­peared to wa­ver on whether reg­u­la­tory re­lief was needed. At a 2015 New Or­leans con­fer­ence, Hall lamented the tough reg­u­la­tory en­vi­ron­ment that had fol­lowed the fi­nan­cial cri­sis, but he said the in­dus­try should stop com­plain­ing. “Just adapt and let’s go,” he told the crowd, ac­cord­ing to the New Or­leans Times-Picayune.

In a tweet­storm Tues­day morn­ing, Sen. El­iz­a­beth War­ren (DMass.), called such re­gional banks “huge fi­nan­cial in­sti­tu­tions that wrecked the econ­omy in 2008.”

“Re­gions Fi­nan­cial Cor­po­ra­tion has about 1,500 branches and 1,900 ATMs. It also got $3.5 bil­lion in tax­payer bailouts dur­ing the 2008 crash,” War­ren said. If the Se­nate bill passes, it “could get the same level of fed­eral over­sight as a small com­mu­nity bank.”

Un­der the bill to be passed by the Se­nate, dozens of banks with be­tween $50 bil­lion and $250 bil­lion in as­sets would be freed from the strictest reg­u­la­tory bur­dens called for un­der 2010’s sweep­ing fi­nan­cial over­haul pack­age, the Dodd-Frank Act. Amer­i­can Express and Ally Fi­nan­cial, which both re­ceived more than $3 bil­lion in bailout money, would find re­lief in the mea­sure, as well as Dis­cover Fi­nan­cial Ser­vices, which re­ceived more than $1 bil­lion in bailout funds.

That en­hanced su­per­vi­sion they have en­dured is “reg­u­la­tion on steroids,” said Nathan Sto­vall, se­nior re­search an­a­lyst at S&P Global Mar­ket In­tel­li­gence. “It is just much fiercer reg­u­la­tion.”

Re­gions de­clined to com­ment for this re­port, but a com­pany ex­ec­u­tive told the Se­nate Bank­ing Com­mit­tee in 2015 that the reg­u­la­tions cost the in­sti­tu­tion about $200 mil­lion a year. About 100 bank em­ploy­ees ac­tively worked on the an­nual stress test to prove to reg­u­la­tors that it could en­dure an­other fi­nan­cial cri­sis, while an­other 150 spent at least some of their time on com­pli­ance is­sues, Deron Smithy, ex­ec­u­tive vice pres­i­dent and trea­surer of Re­gions Fi­nan­cial, told the com­mit­tee.

“For a com­pany like Re­gions, that stan­dard be­ing lifted would likely lib­er­ate as much as 10 per­cent ad­di­tional ca­pac­ity for lend­ing, which could be $8 bil­lion to $10 bil­lion,” he said.

Some of these in­sti­tu­tions are likely to use their new free­dom to is­sue more div­i­dends to share­hold­ers and buy back stock, in­dus­try an­a­lysts said. For some smaller banks, the Se­nate bill would al­low them to grow big­ger without in­cur­ring height­ened reg­u­la­tions, said Erik Gor­don, a pro­fes­sor at the Univer­sity of Michi­gan’s Ross School of Busi­ness. That is im­por­tant as banks scram­ble to keep up with tech­nol­ogy, he said.

“Banks are do­ing well but are fac­ing what is likely an ex­pen­sive wave of tech­no­log­i­cal change, where scale will mat­ter,” he said.

But al­ter­ing one of the cen­tral tenets of the post-cri­sis fi­nan­cial reg­u­la­tion — that banks of a cer­tain size should re­ceive more over­sight — has many Democrats and bank­ing in­dus­try ex­perts wor­ried. Law­mak­ers ini­tially set $50 bil­lion in as­sets as the line above which banks would re­quire ad­di­tional over­sight be­cause they’d be con­sid­ered big enough to pose a threat to the econ­omy if they failed.

“We didn’t give a lot of thought to $50 bil­lion. We had hun­dreds of de­ci­sions to make, and $50 bil­lion seemed like a large num­ber,” said for­mer con­gress­man Bar­ney Frank (D-Mass.), one of the authors of Dodd-Frank.

Con­sid­er­ing the pa­per­work and time in­volved in com­ply­ing with the en­hanced reg­u­la­tions, $50 bil­lion may be too low, Frank said. But the $250 bil­lion thresh­old for the tough­est reg­u­la­tion be­ing con­sid­ered by the Se­nate is too high, he said. “$250 bil­lion is a prob­lem.”

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