The merger between SunTrust and BB&T announced last week is a big deal, literally and figuratively. The deal merges two of the twenty largest banks in the U.S. to form the eighth largest bank in the country. The new entity, with over $430 billion in total assets, will enter the group of supersize regional banks that aren’t quite global Wall Street banks, but have national scale and the ability to dominate conventional commercial banking in their markets.
It’s by far the biggest bank merger since the financial crisis, and signals a potential return to the go-go years of bank expansion and super-concentration that occurred between the major bank deregulation bills in the 1990s (the 1994 Riegle-Neal Act and the 1999 Graham-Leach-Bliley Act) and the 2008 financial crisis. Even in that period — the era that put “too big to fail” at the center of the financial system — this merger would have been huge, one of the largest bank mergers ever by asset size.
But this isn’t a surprise to those who have been paying attention to the legislative and regulatory signals coming out of Washington. Last year, Congress passed S. 2155, a law that directed the Federal Reserve to ease up on regulatory requirements for large regional banks with up to $250 billion in assets and giving them an opening to relax regulations on even bigger banks. Supporters of S. 2155 repeatedly and misleadingly claimed that the bill was only about helping small and community banks thrive. However, as we, and others, pointed out last year, a likely effect of the bill will be reducing the number of community banks by encouraging consolidation and making it easier for big banks to swallow up smaller ones.
More recently, when the Federal Reserve proposed rules implementing the S. 2155 law, they did Congress one better. Their new proposal indicated that they would allow banks to grow up to $700 billion in size without triggering any heightened regulatory requirements. The Fed’s proposed rules also signaled a move from bank size as a focus for regulation to other, more abstract and likely more easily manipulated metrics of risk. As we said in our comment on the proposal, that’s a mistake. Bank size is the single best and clearest indicator of the power and importance of a financial institution. Every dollar of assets owned by a bank is a dollar of credit extended to the economy, which real people and businesses depend on.
AFR and many others have warned that current legislative and regulatory actions would lead to further consolidation in what is already an oligopolistic industry. Now it’s happening. Unfortunately, until and unless Congress and the regulators stop weakening the rules that govern the banking industry, we can expect to see more of the same.