The High Cost of Bank Mergers

Since the 1980s, thanks largely to mergers, the number of banks in the United States has plunged from more than 18,000 to fewer than 5,000.

Critics have long warned of the high price that bank consolidation can entail for both consumers and workers, raising the cost and decreasing the availability of credit while sending unemployment climbing in impacted neighborhoods.

The economy-wide dangers of “too big to fail” banks, meanwhile, were illustrated with devastating clarity by the 2008 financial crisis, which created some belated and limited momentum for Democrats to construct guardrails on an out-of-control financial system, via their 2010 Dodd-Frank Wall Street reform law. Among other changes, the law required regulators reviewing mergers to consider whether they could pose a threat to the country’s financial stability.

The Donald Trump era quickly brought back a renewed charge toward deregulation — and Budd was one of its most aggressive standard-bearers. As a newly minted congressman in 2017, Budd’s first speech on the House floor was a passionate appeal to remove caps on the debit card processing fees charged by banks, earning him denunciation as a “pawn” of Wall Street from the likes of the National Retail Federation, a lobbying group for retailers.

As a member of the powerful House Financial Services Committee, Budd has pushed relentlessly for the rollback of key postcrisis reforms, repeatedly introducing legislation to abolish the Treasury Department’s Office of Financial Research, which is tasked with analyzing risks to financial stability. He also introduced legislation to delay enhanced capital reserve requirements for banks and launched a series of wide-ranging attacks on the recently established Consumer Financial Protection Bureau — including a measure to change its name to the “Consumer Financial Opportunity Bureau.”

Budd also championed an earlier, more radical version of the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act, the banking deregulation bill that ultimately paved the way for a new wave of mergers, beginning with the creation of Truist. Weaker regulatory standards freed up funds for regional banks like SunTrust and BB&T to pursue mergers and acquisitions — without having to worry about triggering enhanced supervision, as David Dayen reported at the time for the Intercept. SunTrust lobbied heavily on the bill and its implementation, federal records show.

Before that deregulation measure was introduced in the Senate, Budd was a cosponsor of the Financial CHOICE Act, an even more sweeping bill that would have created a “regulatory off-ramp” for banks to escape supervision altogether in favor of voluntary commitments. Budd gave opening statements during his committee’s initial markup of the bill, which he said represented the worldview “that banks need freedom to better serve their customers.”

That bill passed the House in a party-line vote in 2017 but stalled in the Senate. When the pared-down banking legislation began moving in the upper chamber again the following year, the existence of Budd and his cohort’s more extreme legislation gave corporate Democrats cover to vote for the regulatory slash-and-burn effort.

While Budd and other Republicans on the House finance committee vowed to keep fighting for their preferred measures, Budd celebrated on Twitter with one of his favorite lines when the banking bill passed the House in May 2018. Rather than ending “so-called ‘too big to fail,’” Budd wrote, the 2010 Dodd-Frank law “inadvertently created ‘too small to succeed’ financial institutions. This legislation moves to change that.”

The Merger’s Congressional Champion

Within months of the deregulation bill’s passage, BB&T and SunTrust pounced: the two banks submitted merger applications to the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC), the two agencies whose sign-off the banks would need. That wouldn’t necessarily be a tall order: from 2006 to 2017, the Federal Reserve did not reject a single one of the nearly four thousand merger applications it received.

However, it was the largest proposed bank merger since before the financial crisis — so it represented a key test of whether bank regulators’ attitude had changed since the meltdown.

Those regulators are subject to heavy pressure from industry and frequently hail from its ranks. Then FDIC chair Jelena McWilliams arrived at the agency from her position as an executive president at Fifth Third Bank; before that, McWilliams worked for the former Republican chair of the Senate Banking Committee, who had also previously employed SunTrust’s head lobbyist. Federal disclosures show that BB&T lobbied the FDIC ahead of the proposed merger.

This kind of regulatory capture makes it especially important for Congress to “bring some transparency and accountability to the process” of mergers like Truist’s, said Matt Kent, a competition policy advocate at Public Citizen, which submitted testimony against the plan for the July 2019 congressional hearing before the House finance committee. The hearing took place at the behest of chairwoman Maxine Waters (D-CA), who asked federal banking authorities to delay a decision until her committee had a chance to review the matter.

With the bank executives in the hot seat, some House Democrats questioned them about SunTrust’s alleged past record of “systemic mortgage servicing misconduct,” per a 2014 settlement, or the potential risks of creating a bank twice the size of Countrywide Financial when it collapsed in 2008.

Budd used his time differently. He first addressed BB&T CEO Kelly King, who had at the time personally donated at least $3,000 to Budd’s campaigns, on top of $10,000 from the bank’s PAC in 2018.

“I know that BB&T’s contributions to our local economy and charitable causes have helped a lot in a lot of parts of our state,” Budd told King. “So, the name means a lot to our community, and I am happy to have you here.”

Budd also gave King the opportunity to address fears about potential job losses, which he insisted were a nonissue in the merger.

“You talked about there not being expected layoffs because you could give them opportunities either in another branch or maybe even somewhere else in Truist,” Budd said to King, who went on to become Truist’s first CEO.

“That is exactly what happens,” King responded. “Even if we consolidate branches, we pool the employees together because we still have the business. Then sometimes they relocate, but they have jobs.”

In April, Truist reported that it had cut its workforce by 14 percent since the merger in December 2019, representing the loss of more than eight thousand jobs, as part of a plan to achieve $1.6 billion in cost savings by the end of 2022.

During the hearing, the BB&T and SunTrust CEOs also described a community benefits package they would deliver, including a commitment to open at least fifteen new bank branches in low-to-moderate-income neighborhoods.

But the agreement was completely nonbinding, and a 2021 review by the Committee for Better Banks (CCB), an advocacy group for bank workers, found that not only had Truist failed to keep that specific pledge, but the bank actually significantly reduced branch openings in diverse neighborhoods while boosting its brick-and-mortar presence in whiter, wealthier neighborhoods.

In written comments submitted to Congress in September, Truist said that it planned to deliver on its community benefit commitments by the end of this year.

But Nick Weiner, organizing lead at CCB, told us that without mechanisms to hold banks like Truist accountable, the commitments made ahead of winning merger approval may amount to little more than lip service.

“Who’s monitoring, who’s enforcing?” Weiner said. “Right now, the enforcement is up to the community groups alone.”

Deregulation Pays Dividends For Budd’s Campaign

In June 2019, as the Truist merger was still pending, Budd introduced legislation to delay implementation of new accounting standards applied to the reserves banks must hold on their balance sheets to offset potential losses from risky loans — a highly technical but fiercely contested issue, given its implications for banks’ lending behavior.

Budd personally thanked the North Carolina Bankers Association, a state-based lobbying group, for introducing him to the issue during his first term, saying the organization’s CEO “deserves much of the credit for making this bill even possible.”

Truist is now the second-largest member of the North Carolina Bankers Association, while BB&T’s King previously chaired the organization.

The state bankers’ association has repeatedly joined its parent organization, the American Bankers Association, in airing ads promoting Budd’s campaigns. The national bankers’ association reported $125,000 in outside spending for Budd in 2018, and is currently in the midst of an eleventh-hour ad blitz for his Senate run.

During his 2020 House reelection campaign, Budd also received more than $20,000 in direct contributions from Truist executives and the company’s political action committee. Truist has delivered more than $23,000 for his Senate bid, making him the bank’s top recipient of campaign cash in the 2022 election cycle, according to data from OpenSecrets. Another former BB&T CEO, John Allison, contributed $20,000 to the Club for Growth PAC, Budd’s top source of cash in this year’s race.

An Uptick in Loans to Budd From Truist

Budd’s personal financial disclosures reveal another, less-often scrutinized channel of potential influence: a series of loans from Truist and its predecessor, BB&T.

A landmark 2016 study from the Institute for New Economic Thinking found evidence that “lenders may create political connections with finance committee members in an attempt to obtain regulatory benefits.” According to the study, members of Congress serving on the House and Senate finance committees tend to receive more lending after their committee appointments — and relative to members of Congress not tasked with overseeing the nation’s financial institutions.

Lawmakers on these committees may also receive more favorable lending terms, according to the study, a scenario exposed a decade ago when the House oversight committee uncovered a “Friends of Angelo” program at Countrywide Financial — named after the lender’s founder and CEO Angelo Mozilo — that offered sweetheart loans at discounted rates to powerful members of Congress.

In the wake of that scandal, the Senate began including loan rates and terms in its disclosure forms, but this information is still omitted from House disclosures.

That means the interest rates on Budd’s loans weren’t available until last year, when Budd began filing candidate reports with the Senate. This year’s report shows two new debt liabilities from Truist after its merger, including a personal line of credit, worth between $50,001 and $100,000, made in 2021 at a 6.75 percent interest rate.

That rate appears to be substantially lower than the rates advertised publicly by Truist on its website that year. According to the website, the annual percentage rates on Truist’s personal lines of credit could range from 8.69 percent to 13.24 percent, depending on the prime interest rate — which remained stable through 2021 — and the creditworthiness of the applicant.

Budd’s candidate disclosures also list a new family revolving charge account — a form of credit that typically carries flexible payoff terms — worth $15,001 to $50,000, from Truist this year at a 10.4 percent interest rate.

In 2017, his first year in Congress, Budd received from BB&T a business line of credit, worth $100,001 to $250,000, at a 3.5 percent interest rate. The high variability in terms and interest rates for these types of lending makes it difficult to evaluate Budd’s terms.

Neither Truist nor Budd responded to our questions about the loans received by the candidate.

Without available interest rate data on loans made to other House members, it’s impossible to say definitively whether Budd received better terms from Truist than those offered to members who don’t happen to sit on the finance committee. The lack of data also underscores a substantial weakness in the federal ethics regime.

“The entire intent of these forms and giving the public this insight into members’ finances is to create accountability and to monitor for potential conflicts of interest,” said Alex Baumgart, a researcher at OpenSecrets. “Not having this basic information on the House forms makes it all the more difficult to differentiate mundane financial dealings from unethical behavior and even possible legal violations.”

In May 2020, Budd’s family business, the Budd Group, also received a $10 million Paycheck Protection Act loan through Truist. Soon after, the American Bankers Association and North Carolina Bankers Association ran ads on Budd’s behalf, thanking him for his support for the PPP.