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 Republican-led 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 the 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 midsized 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 current debate fails to recognize that many of the midsized 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 itself 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 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 (D-Mass.), 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 2010s sweeping financial reform package, the Dodd Frank Act. American Express and Ally Financial, which both received more than $3 billion in bailout money, would find relief by the measure, as well as Discover Financial Services, which received more than $1 billion.
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 story, 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 bank’s annual stress test to prove to regulators 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 reform — 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 be considered big enough to pose a threat to the economy if they failed and require additional oversight.
“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, said Frank. But the $250 billion threshold for the toughest regulation being considered by the Senate is too high, he said. “$250 billion is a problem.”
During a financial crisis, banks tend to fail in tandem, suffering from similar ailments, said Stanley from Americans for Financial Reform. “If one went down, then you have three or four going down, then it gets to be a lot bigger problem,” he said.
The bill’s supporters dismiss such concerns. “Data shows again and again that regional banks present minimal risk to the financial system,” the Regional Bank Coalition, an industry trade group that includes Regions, said in a statement.