In response to news that SunTrust and BB&T are attempting to merge in a deal that would create the sixth largest bank in the United States, Sen. Elizabeth Warren (D-Mass.) declared that this is precisely the kind of financial sector consolidation she was warning about last year as congressional Democrats and Republicans teamed up to ram through a major bank deregulation bill.
"Two of the country's biggest banks—SunTrust and BB&T—are merging to form one of the biggest banks in the country. That's exactly what I was worried about a year ago after Congress passed its big bank deregulation bill," wrote the Massachusetts senator and likely 2020 presidential candidate, referring to the legislation that critics took to calling the "Bank Lobbyist Act."
Warren went on to express concern that the merger—which, if approved, would be the largest since the 2008 financial crisis—could set the stage for another economic meltdown.
"Gigantic banks wrecked our economy, but the Fed told me they are rubber-stamping nearly every proposed bank merger," Warren wrote on Friday. "SunTrust and BB&T are probably next. We can't let banks become too big to fail again: American families will suffer."
Gigantic banks wrecked our economy, but the Fed told me they are rubber-stamping nearly every proposed bank merger. @SunTrust and @BBT are probably next. We can’t let banks become too big to fail again: American families will suffer. https://t.co/hXTWeGzXgw
— Elizabeth Warren (@SenWarren) February 8, 2019
As journalist David Dayen reported for The Intercept on Friday, SunTrust and BB&T's proposed merger is a direct consequence of the bipartisan deregulatory bill—a fact that undermines repeated claims by Democrats and Republicans alike that the measure was designed to provide relief to small community banks.
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The bipartisan legislation (S.2155) "weakened regulatory standards for banks between $50 billion and $250 billion in assets, a category that also includes SunTrust and BB&T," Dayen noted. "This allowed them to reduce projected spending on regulatory compliance. The combination of this and the tax windfall gave the banks operating funds to devote to mergers and acquisitions."
Dayen went on to explain in detail the "obscure" but "certainly not accidental" provision in the bill that made the SunTrust and BB&T merger possible:
Experts believed that firms under $250 billion in assets would feel free to grow through consolidation, without concern for a higher regulatory burden. The new bank created by the deal between SunTrust and BB&T would actually breach that threshold, creating a bank with $442 billion in assets. But an obscure—but certainly not accidental—provision of S.2155 enabled the Federal Reserve to provide relief for banks at that level too.
Section 401 of S.2155 changed the authority for tailoring heightened regulatory standards for banks above $100 billion in assets. By changing one word in existing statutes, from "may" to "shall," the bill required the Fed to assess all its rules to ensure that they’re tailored to each specific bank, based on size or amount of risk.
The Fed took this loophole and drove a truck through it. Last October, it proposed assembling four categories of banks, with different regulatory standards provided to each. Firms between $100 billion to $250 billion would get the lowest scrutiny, followed by those between $250 billion and $700 billion, the category the new SunTrust-BB&T bank would fall into. Those banks would no longer be subject to certain capital and liquidity requirements, which the Fed labels as "advanced approaches." They also would only be subject to company-run stress tests, where the bank must show how it would fare under adverse economic conditions, every two years, as opposed to semiannually.
Rep. Katie Porter (D-Calif.), a freshman congresswoman and Warren protégé who is on the House Financial Services Committee, told The Intercept that the SunTrust-BB&T merger could dangerously increase systemic risk in the financial sector.