Senators Question Changes That Make Bank Mergers Easier

By Amit R. Paley
Washington Post Staff Writer
Friday, October 31, 2008

Lawmakers expressed concern yesterday about whether a recent change in tax policy that makes it more attractive for banks to take each other over was justified and whether taxpayer funds have been used to support the acquisition of healthy banks.

Sen. Charles E. Schumer (D-N.Y.) asked the Treasury Department to justify a Sept. 30 notice that changed tax regulations. Some analysts have said that the change, which does not have an expiration date, could cost taxpayers more than $100 billion.

"I am concerned that the Notice, which was never debated by Congress, could end up costing taxpayers tens of billions of more dollars on top of the hundreds of billions of dollars already approved by Congress in the financial rescue plan," he wrote in a letter to Treasury Secretary Henry M. Paulson Jr. and Douglas H. Shulman, commissioner of internal revenue.

Schumer, a member of the Senate Banking Committee, also noted that three banks stand to reap significant tax benefits from merging with other banks. He was referring to Wells Fargo, which is acquiring Wachovia; PNC, which is taking over National City; and Banco Santander, which is taking on part of Sovereign Bancorp.

Sen. Sherrod Brown (D-Ohio) also wrote to Paulson about his anxiety that the Treasury's $700 billion bailout fund was being used to encourage mergers rather than jump-start lending. He said that a third of the banks that have announced plans to participate in the capital purchase portion of the program may use the funds to buy other banks.

"I urge you to insist that participants in the capital purchase program not use taxpayer dollars to buy healthy banks," he said.

Andrew C. DeSouza, a Treasury spokesman, declined to comment directly about either letter but said the primary purpose of the program is to have healthy banks that can lend to American consumers and businesses.

"It's in no one's interest to have unhealthy banks that are unable to play their role as lenders in our economy or whose failure could threaten the financial system," DeSouza wrote in an e-mail, "so it's possible and even appropriate if capital injections are used to create strong, healthy financial institutions."

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