America's Next Too-Big-To-Fail Bank

The political battle lines over the biggest bank merger since the 2008 financial crisis should be very clear.

As House Financial Services Committee chair Maxine Waters (D-Calif.) noted when the deal was announced in February, the effort to combine Southern banking titans SunTrust and BB&T into America’s seventh-largest megabank is “a direct consequence of the deregulatory agenda” that President Donald Trump and congressional Republicans have advanced.

Waters and other high-profile Democrats have been railing against corporate monopolies for years now. Back in 2017, the party’s leadership rolled out an economic agenda for the Trump era that explicitly attacked “corporate power” and “big mergers.”

And the two banks involved in this particular big merger are thoroughly Republican institutions. Of the $363,950 that BB&T’s corporate PAC spent on campaign contributions in 2018, 96% went to Republicans. SunTrust’s PAC favored the GOP almost 7 to 1. A former Republican Senate staffer is SunTrust’s lead lobbyist on the deal, and Trump has blocked Democratic appointments at the key regulatory agency reviewing the merger.

But Democratic Party officialdom has been almost silent about the deal and the new locus of conservative financial power it portends. The BB&T-SunTrust merger isn’t just a triumph for the economic vision of the American right. It’s also the product of a long, sad struggle within the Democratic Party over how to fight the Trump administration.

“If Democrats want to show that they’re serious about tackling Wall Street corruption and fighting for economic justice, they have to investigate the substance and process of this merger,” said Evan Feeney, campaign director for the media, culture and economic justice department at the civil rights organization Color of Change.

Instead, many Democrats seem to believe that the best way to beat Trump is to help him get whatever he wants on high finance.

Two Bad Banks Don’t Make A Good Bank

In the years since the financial crisis, SunTrust has paid over $1.5 billion to settle charges of widespread mortgageabuseundersixdistinctcategories of misconduct, from overcharging black families to lying to the government about toxic mortgages to straight-up fraud in the foreclosure process. In 2008, the Federal Deposit Insurance Corp. (FDIC) discovered “a pattern or practice of discrimination on the basis of race” in BB&T’s consumer lending business, including “substantive violations” of three anti-discrimination laws. Seven years later, the Consumer Financial Protection Bureau found that the bank was violating the Equal Credit Opportunity Act. BB&T paid $83 million in 2016 to settle claims that it knowingly sold the government junk mortgages, and both the Federal Reserve and the FDIC issued enforcement actions against the bank over its weak efforts against money-laundering operations.

Plenty of institutions within the liberal firmament have called on regulators to reject the merger: The National Black Farmers Association, Color of Change, the Center for Popular Democracy and the Revolving Door Project at the Center for Economic Policy and Research (CEPR).

Combining two bad banks isn’t generally a good way to create a good one. And the benefits of the deal that SunTrust CEO William Rogers Jr. and BB&T CEO Kelly King have touted are all about cutting costs ― basically firing people and selling off real estate. There’s a lot of regulatory compliance staff at each bank, and the two companies have 740 branches that operate within two miles of each other.

As the National Black Farmers Association notes, the deal will create the largest bank across the combined market of Florida, Georgia and Virginia, with even greater concentration in specific cities. The bank will control nearly a third of the commercial banking business in Atlanta and more than three-fourths of the market in Winston-Salem, North Carolina. “One can expect that lower deposit rates, higher interest rates and less favorable financing terms will follow,” the NBFA writes.

But more perilous still is what the deal might signal for future consolidation within the banking industry. “We see this as the tip of the iceberg,” says Feeney. It’s a perspective shared by many financial analysts, who expect a wave of bank mergers if the SunTrust-BB&T deal goes through.

Incentives To Merge

There’s a simple reason that the banking industry is eyeing a new era of mass-merger. Last year, Trump signed a deregulation bill into law that encouraged banks to combine forces.

Prior to the law, banks with more than $50 billion in assets were subjected to the most stringent rules against risk-taking ― rules meant to target “too big to fail” banks. The law reset that threshold at $250 billion and gave the Federal Reserve the power to deregulate things even further. And the Fed did.

The Fed divided up banks by size into four tiers, each with its own set of restrictions on capital and liquidity ― basically, how much borrowed money banks can rely on and how much cash they need to keep on hand. Under the Fed’s rules, banks can grow as large as $700 billion without triggering the toughest capital and liquidity standards. By clustering big banks into a broad regulatory class, the Fed’s rule makes a mega-deal like SunTrust-BB&T especially attractive, allowing the combined bank to take bigger risks by relying more heavily on borrowed money. The same incentives exist for mergers in every tier.

Without the 2018 bank bill, SunTrust and BB&T would have faced tougher liquidity rules once merged. Thanks to the bill, they won’t.

Republicans had been introducing different versions of this legislation for years and getting nowhere. What changed in 2018 was the Democratic Party leadership in the Senate. Democratic leader Harry Reid (D-Nev.) had maintained a standing filibuster threat over the bill, but then Sen. Chuck Schumer (D-N.Y.) took over when Reid retired in 2017 and gave red-state and swing-state Democrats the green light to cut a deal with the GOP.

Both SunTrust and BB&T lobbied hard for the bank bill, and they came to the fight prepared. Though both banks focus their political spending on Republicans, they targeted a handful of Democrats over the 2018 election cycle ― Sens. Tom Carper (D-Del.), Heidi Heitkamp (D-N.D.), Joe Manchin (D-W.Va.), Doug Jones (D-Ala.), Mark Warner (D-Va.) and Bill Nelson (D-Fla.), and Rep. Kyrsten Sinema (D-Ariz.), who eventually won a Senate seat in November 2018.

Every single one of them voted for the bank bill. The lone miss for the banks was Sen. Sherrod Brown (D-Ohio), who received an experimental $1,000 donation from BB&T when he became the top Democrat on the Senate Banking Committee. Without Democratic support, the bank bill would have been filibustered into oblivion. Instead, 16 Democrats handed Trump his signature bipartisan achievement to date.

In an email to HuffPost, Warner’s office disputed the “theory” that the bank bill helped BB&T, pointing to a March 2018 letter from the bank asking Congress for additional regulatory relief “for banks that fall above the proposed $250 billion asset threshold.”

But the letter only shows that BB&T received exactly what it asked for. Congress ordered the Fed to tailor a new set of rules for larger banks, and the Fed’s rules ultimately reduced both capital and liquidity standards for banks with less than $700 billion in assets. The fact that BB&T ― which had total assets of $221.7 billion ― was asking for relief for banks with more than $250 billion, suggests that the bank’s decision to grow was influenced by the regulatory breaks the Fed ultimately delivered.

Tester’s office also disputed the idea that the law encouraged mergers, noting that BB&T and SunTrust will still be subjected to some tougher rules as a result of their merger. It’s true. But without the 2018 law, the combined bank would face even tougher conditions.

Trump rewarded the Democrats who backed the bill by campaigning ferociously against them in November. A lot of them lost, including Nelson, Heitkamp and Sens. Joe Donnelly (D-Ind.) and Claire McCaskill (D-Mo.). Some of those who survived won by large margins and didn’t need campaign contributions from the banking industry to win. But for some who ran in close contests ― particularly Sinema, Manchin and Sen. Jon Tester (D-Mont.) ― the support from the banking industry may well have helped put them over the top.

And Trump is still running roughshod over Democrats on finance. The assault has been more subtle than the president’s attacks on special counsel Robert Mueller’s investigation and House Democratic oversight efforts, but it may ultimately prove more effective.

The Effectiveness Of Foot-Dragging

Back in November, Schumer recommended Tump appoint Graham Steele to fill a vacant Democratic seat on the board of the FDIC, a key bank regulator with the authority to reject and approve mergers. Six months later, Steele is still waiting for a hearing. As the agency reviews the SunTrust-BB&T deal, it doesn’t have its full complement of Democratic regulators on the job. Steele’s case is the latest entry in a long-running dispute between Schumer and Trump over similar appointments.

“It feels like a slow-motion erosion of the minority party’s power,” said Jeff Hauser, executive director of CEPR’s Revolving Door Project. “I think they’re trying to see how few Democratic nominations they can advance without it becoming a cause celebre.”

The FDIC and other agencies operate with a five-member board. Three seats are reserved for the president’s party; two for the party that opposes him. Traditionally presidents accept the recommendations of the opposing party’s Senate leader, and there is no precedent for a president simply refusing to make the nominations outright. But so far Trump has taken a long time to actually nominate the people Schumer puts on the table, who then face an extra round of delays as McConnell slow-walks the hearing process.

Schumer resisted direct confrontation with Republicans over the appointments for months, but tensions at last boiled over in April, when McConnell changed Senate rules to allow faster confirmation of conservative judges. The GOP Senate was openly fast-tracking their favored judicial nominees while strategically ignoring Democratic appointments.

Speaking from the Senate floor, Schumer assailed McConnell’s “sorry record of obstruction of nominees to Democratic seats,” cited the “hundreds of vacancies the president can’t even be bothered to fill” and “the appalling history of incompetence, corruption and venality” among the agency nominees Trump had actually advanced. Schumer accused McConnell of “cynical, partisan efforts to turn the Senate into a conveyer belt for ideological conservatives.”

Activists welcomed Schumer’s change in tone. But they still put some of the blame for the regulatory staffing problems on his shoulders.

“Schumer and the Democratic Party promised to crack down on monopolies and abusive economic power in their Better Deal platform,” Demand Progress Executive Director David Segal told HuffPost. “We need them to step up and use the political and procedural power at their disposal ― on the floor, at the committee level, as they negotiate with Trump around legislative priorities, everywhere ― to ensure that these regulatory agency slots are finally filled.”

Blocking a merger is always an uphill battle. But in recent years economists and think tanks have grown increasingly concerned with the political power wielded by large corporations, and the FDIC has a variety of authorities it could exercise over the SunTrust-BB&T deal. It could reject the merger outright, force the banks to sell off branches and assets, or even just establish a formal framework to evaluate the bank’s performance ― with some penalties for bad behavior.

All of those remedies are more likely if Democrats can fill the agency’s board seats.

This is the kind of fight Democrats can win if they wage it. Democratic appointee Allison Lee was just nominated to the Securities and Exchange Commission after a wait of several months, but it required some dealmaking from Schumer ― his floor speech and direct talks with McConnell. Steele and fellow Democrat Martin Gruenberg will be outnumbered on the FDIC board, but FDIC Chair Jelena McWilliams isn’t viewed as a nutty Trump appointee. Conservatives have blocked mergers before ― the George W. Bush administration intervened in US Airways’ attempt to merge with United Airlines in 2001 and followed up by blocking a deal between EchoStar and DirecTV.

Or maybe the Fed and the FDIC will just ram through the deal anyway. But you can’t win the games you don’t play. On Thursday, Waters sent a letter to McWilliams and Fed Chair Jerome Powell announcing an investigation into the deal by the House Financial Services Committee, asking both agencies to refrain from issuing any rulings on the merger until Congress had completed its own investigation.

In her letter, Waters called the merger a product of the “a broad deregulatory giveaway to the largest banks” that Congress approved last year.

But for Waters to succeed, she’ll have to win a battle within her own party, where much of both the leadership and its rank-and-file actually like Trump’s alliance with Wall Street. That’s why they voted for it.

Correction: A previous version of this article stated Allison Lee had been confirmed as SEC Commissioner. She has been nominated.

• This article originally appeared on HuffPost.