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Regional banks split from Wall Street in Volcker Rule challenge

Jaret Seiberg

Several financial firms, including U.S. Bancorp, SunTrust Banks, Inc., PNC Financial Services Group and Regions Financial Corp. have organized Washington lobbying efforts against the 2010 Dodd-Frank Act’s Volcker Rule.

Regional bank executives and lobbyists said that they should not be subject to the rule, which prohibits banks from engaging in proprietary trading, because they focus on deposits and lending rather than the high-risk activities of banks like JPMorgan Chase and Goldman Sachs.

“We are not Wall Street banks, but we face the same regulatory regime as a Wall Street bank,” Mark Oesterle, a SunTrust lobbyist who formerly served as an aide to Sen. Richard Shelby (R-Ala.) of the Senate Banking Committee, said, according to DelawareOnline.com.

Regional institutions usually have more than $50 billion in assets, most of which lies in commercial and retail loans as opposed to complex investment and banking products. Wells Fargo & Co. is 20 times bigger than a regional institution with more than $1 trillion in assets.

“There’s a vast difference between a $100 billion regional bank and JPMorgan,” Jaret Seiberg, a senior policy analyst with Washington Research Group, said, DelawareOnline.com reports. “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.”

Before Dodd-Frank, regional institutions did not have full-time lobbying representatives. As the banks prepare to fight certain provision of Dodd-Frank, however, they have enlisted individuals to focus on full-time lobbying efforts.

Regional banks may only be able to effect a certain amount of change, because most of the firms have assets that exceed the $50 billion asset threshold established by Dodd-Frank and are, therefore, subject to more stringent regulatory oversight. The institutions may, however, ask regulators to examine and take into account the differences that exist between banks of various sizes, according to DelawareOnline.com.

Legislators included the Volcker Rule in the law to prevent a repeat of the 2008 financial crisis, fueled by the risky investment activities of big banks like AIG and Lehman Brothers.
Regional institutions are seeking to distinguish themselves from large banks, which trail regional banks in return on equity, a measure of profitability, DelawareOnline.com reports.

Additionally, regional institutions have sent a number of joint comment letters to regulators regarding the Volcker Rule and “living will” proposal, which requires banks to design emergency exit plans from the market in the event of an institution’s failure.

Regional banks said that the Volcker Rule would increase compliance costs, as they would have to institute expensive compliance programs despite their lack of participation in the risky activities prohibited by the rule.

“The proposal as written will cause each of our organizations to comply with man, if not all, of the same requirements applicable to the largest financial firms with substantial trading volume and covered fund investments,” BB&T, Capital One, Fifth Third, KeyCorp, PNC, Regions and U.S. Bancorp said in a letter to regulators earlier this year, according to DelawareOnline.com.

Several members of the Senate Banking Committee echoed that sentiment, saying in a letter to regulators that compliance costs could force some banks to stop participating in activities allowed under the Volcker Rule that provide liquidity to customers.

Regional bank lobbyists have held monthly conference calls and have met in person every three months, though they have not yet established their own trade group or opposed the big bank agenda, DelawareOnline.com reports.

Wayne Abernathy, the executive vice president of the American Bankers Association, of which the regional banks are members, said that the organization has pushed regional institutions 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, according to DelawareOnline.com.