Mid-sized banks that mostly let Wall Street and small firms speak for the industry during the debate over the Dodd-Frank Act have decided its time to carve out their own agenda in Washington.
Companies including U.S. Bancorp., SunTrust Banks Inc., PNC Financial Services Group Inc. and Regions Financial Corp. are opening their own lobbying shops and staffing them with seasoned Washington hands. Regulators and lawmakers have begun to pay attention as the banks argue for changes in how theyre affected by Dodd-Frank rules including the so-called Volcker ban on proprietary trading and procedures for unwinding failed banks.
Executives and lobbyists for regional banks say they should be treated differently by agencies implementing the new regulations, because they focus on traditional deposits and lending rather than the higher-risk activities of firms such as JPMorgan Chase & Co. and Goldman Sachs Group Inc.
We are not Wall Street banks but we face the same regulatory regime as a Wall Street bank, said Mark Oesterle, a lobbyist for SunTrust who formerly served as an aide to Senator Richard Shelby of Alabama, the top Republican on the Senate Banking Committee.
Regional banks tend to have more than $50 billion in assets, mostly in commercial and retail loans rather than complex investment banking products. Their size is well short of a Wells Fargo & Co., which is 20 times larger with assets of more than $1 trillion. Most have a distinct geographical footprint, like Regions in the South. There are about a dozen such firms in the U.S. who have become active in Washington.
Lobby Expenses
Atlanta-based SunTrust spent less than $5,000 on lobbying in 2011 and 2010, according to federal records. So far in 2012, the bank has reported spending $75,000.
Other banks are opening their checkbooks even wider. PNC, based in Pittsburgh, reported spending $570,000 in 2010, $1.53 million in 2011 and $750,000 so far this year, records show. Regions, of Birmingham, Alabama, spent $540,000 in 2010, $1 million last year and $890,000 so far in 2012.
Cincinnati, Ohio-based Fifth Third Bancorp., which spent $145,000 in 2010 and $680,000 so far this year, hired Eric Rizzo, a former congressional aide and insurance industry lobbyist, to open a Washington office in June 2011.
We needed to beef up, to have that day-to-day presence in Washington, Tom Ruebel, the banks Columbus, Ohio-based director of government affairs. Its not just Dodd-Frank implementation but a long-term investment for us.
Vast Difference
Ruebel said in an interview that the bank is looking to 2013, when a new Congress might revisit parts of Dodd-Frank. If there are any decisions that different pieces of Dodd-Frank need a look, we want to be there, he said.
Jaret Seiberg, a senior policy analyst with Washington Research Group, a unit of Guggenheim Securities, said the banks are in a separate class because they mobilize savings for productive use by turning retail deposits into commercial loans.
Theres a vast difference between a $100 billion regional bank and JPMorgan, Seiberg said. Congress views the institutions differently. The regulators view them differently. So it makes all the sense in the world that they would want to be represented differently. They should have done it five years ago.
While regional banks hired outside lobbyists in Washington before Dodd-Frank, none had their own offices with full-time representatives, except for Capital One Financial Corp., which is based in nearby McLean, Virginia.
Birmingham Commute
Regions, for example, sometimes flew Chris Scribner, an executive at its Birmingham headquarters, to Washington to tend to federal policy. Now Scribner works in the nations capital under Brian Smith, a former lobbyist for government-backed mortgage company Fannie Mae.
Minneapolis-based U.S. Bancorp lured Kevin MacMillan, a former Treasury Department legislative affairs official, from Bank of America Corp. BB&T Corp. of Winston-Salem, North Carolina, tapped John Hardage, previously a congressional liaison at the Office of Comptroller of the Currency. PNC hired Vince Randazzo, who worked for the House Financial Services Committee.
There was this view on the Hill that you were either a small community bank or a mega-bank, Smith, of Regions, said in an interview. We felt like the middle child.
Representative Barney Frank, the Massachusetts Democrat who was then head of the House Financial Services Committee, said that was basically true during the debate on the law. I dont remember hearing from them at all, Frank said in an interview. And it would have mattered.
Dodd-Frank Threshold
Despite the new lobbying firepower, the regional banks have limited room for change when it comes to Dodd-Frank rules. The law specifies that institutions with more than $50 billion in assets are subject to the most stringent requirements, a threshold exceeded by most of the firms.
What the regional firms can do is ask regulators to account for differences among banks when they write the details. For example, agencies are now completing the rule that requires companies designated as systemically important to draw up living wills, blueprints for how they could be dismantled in an orderly way if they neared insolvency.
Lawmakers included the rule in Dodd-Frank to avoid repeating the dilemma of the 2008 credit crisis: to pay for a bailout for a failing firm, like the government did for American International Group Inc., or let it collapse, as regulators decided in the case of Lehman Brothers Holdings Inc.
Great Example
In a letter to the Federal Reserve, 10 regional banks banded together to ask that the living-will rule be tailored to account for firms with simple structures. What made the crisis difficult was not so much the size of a troubled company like Lehman but that it was a large, interconnected investment banking firm with substantial nonbank and foreign operations, they wrote on June 10, 2011.
Living wills is a great example of a rule that never should have applied to these guys, said Karen Shaw Petrou, managing partner of Washington-based Federal Financial Analytics Inc. That doesnt mean it shouldnt have an appropriate recovery plan, but it isnt the same as JPMorgan Chase and Blackrock Inc.
The regional banks push to distinguish themselves in Washington comes as their profits outperform their larger rivals. They are making gains as reduced trading activity and troubled investments made before the credit crisis have damped earnings and curbed compensation at the bigger firms.
Larger investment banks are cutting jobs as revenue growth ebbs. That has given regional banks a change to pick up market share.
Financial Health
Very large banks lag their regional counterparts in return on equity, a measure of profitability, according to data compiled by Bloomberg. For example, Goldman Sachs returned 5.2 percent in the second quarter of 2012, while Bank of America had 4.7 percent. Buffalo, New York-based M&T Bank Corp. returned 8.2 percent in that period while Fifth Third hit 11.5 percent.
The financial health of U.S. Bancorp -- it returned 16.5 percent in the second quarter -- has enlarged the clout of its chief executive officer, Richard K. Davis. He served in 2010 as chairman of the Financial Services Roundtable, a banking trade group, and has met more than once with President Barack Obama to discuss economic policy.
Regional banks are pretty boring and pretty consistent in their business, Davis said in December.
That theme is echoed in the joint comment letters that the regional banks sent to regulators on Volcker and the living-will proposal, as well as on swap-trading rules and pending requirements for capital buffers under the international Basel agreement.
Fed Meeting
CEOs of eight banks including U.S. Bancorp, Fifth Third, PNC, Northern Trust Corp. and M&T Bank met with Treasury Secretary Timothy F. Geithner and Deputy Secretary Neal Wolin in May. And 12 regional bank executives met in July with Federal Reserve officials, including Fed Governor Daniel Tarullo, in part to discuss the Volcker rule.
The regional banks said the Volcker proposal would require them to set up expensive compliance programs even though they dont engage in the risky trading the rule prohibits.
The proposal as written will cause each of our organizations to comply with many, if not all, of the same requirements applicable to the largest financial firms with substantial trading volume and covered fund investments, PNC, U.S. Bancorp, Capital One, SunTrust, Fifth Third, BB&T, Regions and Cleveland-based KeyCorp wrote in a Feb. 3 letter to regulators.
Not Hostile
The position drew support from six members of the Senate Banking Committee, including Senators Mark Warner, a Democrat of Virginia, and Mike Crapo, a Republican of Idaho, who wrote to regulators on Feb. 16 that compliance costs could cause some banks to exit certain types of activities that provide liquidity to their customers and are permitted by the Volcker Rule.
Frank said the regulators have the flexibility to reduce compliance costs on regional banks. They are assuming the regulators are stupid or hostile, and I dont think they are hostile, Frank said.
The Feds Tarullo has recognized the role of regional banks as he warns of the systemic risks posed by the largest Wall Street firms. For example, he said on June 6 that there would be a sliding scale for the capital surcharges to ease the burden on banks with over $50 billion in assets that arent among the largest players like Bank of America or JPMorgan.
Tarullo also suggested that if it turned out, as Wall Street banks have claimed, that Basel rules crimp their ability to lend money, then smaller institutions could fill the void.
Trade Groups
To the degree that systemically important institutions find the additional capital requirement makes some lending unprofitable, that lending could be assumed by smaller banks that do not pose similar systemic risk and thus have lower capital requirements, Tarullo said in a June 2011 speech.
While the regional bank lobbyists have been holding monthly conference calls and meeting in person every three months, they havent yet taken the step of forming their own trade group and havent opposed the agenda of the big banks. They remain members of the American Bankers Association, which counts all the large institutions among its ranks.
The regional banks arent part of the Independent Community Bankers of America, which on its website claims nearly 5,000 members with assets between $3 million and $17 billion.
Wayne Abernathy, executive vice president of the ABA, said his association has tried to show the regional banks that it can continue to represent their interests in Washington.
It keeps us on our toes, to make sure as a trade association that we meet the needs of all our members, Abernathy said.
