Magazine article American Banker

Regional Banks on 'Too Big to Fail': 'It's Not Our Fight'

Magazine article American Banker

Regional Banks on 'Too Big to Fail': 'It's Not Our Fight'

Article excerpt

Byline: Barbara A. Rehm

The cost of being big is multiplying, and that's driving a wedge between the largest banks and the next tier.

As the industry's six giants lobby against stricter oversight including vastly higher capital requirements, banks in the next tier are making the case that they should not be saddled with the remedies designed to cure Too Big to Fail.

"We have absolutely nothing in common with the Big Six," one regional bank executive told me. "We won't advocate for a break up, but we are adamant that it's not our fight."

In other words, the regional banks -- those that are big-but-not-that-big -- are not lobbying against the biggest banks. But they are not defending them either.

That's today's strategy. What happens if the "too big to fail" debate intensifies and legislation appears more likely? And even without new laws, it's clear the rhetoric on Capitol Hill has led federal regulators to conclude that they must do more to tame the threats posed by the largest banks.

So is there a tipping point where it's in the regional banks' interest to lobby against the largest banks?

The largest banks -- and several national trade associations -- are trying hard to keep everyone on the same page. "There's a lot of talk about speaking with a single voice and standing together, but that's just code for 'do what we say,'" one regional bank lobbyist told me.

I'm not advocating an intra-industry war. Far from it. Banking gets better policy results when it presents a united front to lawmakers and regulators. But this issue -- smaller banks facing escalating regulatory costs designed to fix "too big to fail" -- has already separated the community banks from the rest of the industry and it's threatening to divide the regionals as well.

Some fissures have already appeared as national trade associations have tried to get members to pay for research on "too big to fail" issues. "If Jamie wants to fund some huge study ...he can. We aren't going to cut a check," says one lobbyist referring to JPMorgan Chase's CEO Jamie Dimon.

The Big Six are JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley. The largest, JPMorgan, has $2.4 trillion of assets; Morgan Stanley is the smallest at $780 billion.

It's a big jump down in size to the seventh spot occupied by USBancorp with $353 billion in assets. From there, five companies top $300 billion; two more have at least $200 billion; and another 11 have at least $100 billion. Below that, 12 banks have at least $50 billion.

These regionals have formed a loose coalition to redefine the concept of "too big to fail" away from size to focus more on what a company does. Their central message is this: complex, interconnected firms with global operations are the only ones that should be subject to any extra requirements designed to tame "too big to fail. …

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