UPDATE: BANK BILL: Overhaul Punishes Regional Banks
June 25 2010 - 4:57PM
Dow Jones News
In its financial overhaul legislation, Congress seems to be
sending a message to the nation's banks: Be very small or very big.
In many ways, the banks most affected by the new legislation will
be regionals.
The largest banks have the scale and revenue diversification to
dilute--or circumvent--the costs of the slew of new regulations
that will likely follow the financial overhaul bill. Lawmakers
finalized the bill Thursday night and it's expected to be voted
into law next week. Community banks with less than $10 billion in
assets, on the other hand, are escaping the overhaul almost
entirely.
That has filled George Engelke Jr., chairman and CEO of Astoria
Financial Corp. (AF), with consternation. His Lake Success, N.Y.,
company, with $20 billion in assets, is one of the nation's largest
thrifts, and will get hit with new capital rules and a new
regulator. "We didn't cause all these problems," he said.
Big banks get off easy, he complained, while the bill "primarily
smacks around" regional banks with more than $15 billion in
assets.
The bill stipulates that in five years trust-preferred
securities won't count as Tier One capital, a critical regulatory
measure.
Though many of the trust-preferreds will have matured in five
years, Engelke is worried regulators might take a tougher stance
and force banks might to replace them with equity earlier.
BB&T Corp. (BBT), the nation's 12th largest bank with $164
billion in assets, also raised concerns about the treatment of
trust-preferreds. "Until more details are disclosed we see
potential challenges ahead" related to capital and rules related to
private-equity stakes, a spokeswoman said.
Still, the Winston-Salen, N.C. bank supports new rules on
consumer protection, stronger mortgage underwriting, and clearing
of derivatives, she said.
Astoria's Engelke said new rules forcing banks to hold at least
5% of securitized loans "is a good thing" because it will "scare
Wall Street" into more careful loan underwriting.
Still, he was angry that Senate Agriculture Chairman Blanche
Lincoln (D., Ark.) raised the exemption from the rule about trust
preferred securities for banks with assets of more than $10
billion, a move that will shelter Arvest Bank Group Inc. of
Bentonville, Ark., Lincoln's home state. Arvest Bank is
predominantly owned by the Walton family, of Wal-Mart Stores Inc.
(WMT). "I can't call anybody" in Congress to lift the threshold
further, Engelke said. "If I were Wal-Mart, the rules would be $25
billion." Left unaddressed is why trust-preferred securities have
merit in small banks but not in large ones, he said.
A spokeswoman for Lincoln said last week she was pushing the
change to make sure "no Arkansas bank--no matter its owner--is
punished" by the provision."
Astoria is also going to be impacted by the merger of its
primary regulator, the Office of Thrift Supervision, into the
Office of the Comptroller of the Currency.
Engelke fears that the OCC, to prove itself to Congress, will
take a tougher stand than the OTS. Thrifts "are going to pay the
price" for the "leaning curve" at the OCC as well, he said.
Indeed, some thrifts or even regional banks may seek to be
regulated by state banking supervisors, who bankers feel might have
a better understanding of their specific local needs, rather than
federal overseers, said Gerard Comizio, a senior partner in the
bank regulatory group of law firm Paul, Hastings, Janofsky &
Walker LLP.
Regional banks larger than Astoria got hit even harder. Those
with more than $50 billion in assets will pay a fee to cover the
cost of the financial overhaul. All banks have to pay more
attention to state laws because federal regulators would not be
able to preempt state legislation as easily as they can now. All
this will add to the banks' legal and regulatory costs, without
creating too much of a headache for the big banks.
Banks with less than $10 billion in assets will escape the
consumer protection bureau established in the legislation. "The
community banks are clearly the winner of this bill," Comizio
said.
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471;
matthias.rieker@dowjones.com
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