Who will regulate BB&T-SunTrust?

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WASHINGTON — Among the many still-unanswered questions about the proposed merger between BB&T and SunTrust Banks is which primary regulator will oversee the combined $442 billion-asset institution.

The two companies are said to be still mulling which charter to seek. Each of the three federal agencies — the Federal Reserve Board, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency — have points in their favor, but some observers also point to drawbacks among the choices.

BB&T and SunTrust “really have the flexibility to choose which way they go and it’s going to be a function of cost ... and who will be the regulator that is easier and faster to get approvals,” said Bert Ely, a financial institutions and monetary policy consultant in Alexandria, Va.

The companies announced in February that BB&T would acquire SunTrust in a $28 billion stock deal. With each bank under the umbrella of a holding company, the Fed is expected to oversee the merger. But which agency supervises the resulting bank over the long term is still unknown.

The bank subsidiaries of each firm are currently state-chartered, with BB&T overseen by the North Carolina regulator and SunTrust answering to the state of Georgia. But each bank is also supervised by a federal agency: BB&T by the FDIC and SunTrust by the Fed.

The FDIC in particular has a lot to gain or lose with the companies' decision. With $226 billion of assets, BB&T is the largest bank supervised by the agency. But if they opted for the FDIC, some observers question whether the regulator, which primarily supervises community banks, could handle an institution nearly double that size.

It “would be more challenging for the FDIC [as] the primary regulator to take on an institution of larger ... size because it doesn’t have the embedded skills like the OCC and Fed,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics. “Size does raise complexity and unique risks.”

Others countered that the FDIC could handle overseeing the expanded bank.

"The FDIC would be fully capable of supervising the merged institution," said Sheila Bair, who chaired the FDIC from 2006 to 2011. "It is ridiculous to suggest otherwise."

The banks could choose the Fed, which has had more experience supervising the largest banks in the country. The OCC also has a longer track record supervising bigger banks than the FDIC, and the added benefit of preemption authority nationally chartered banks, allowing them to bypass state laws.

“Personalities come into play, too, specifically in terms of how effectively the merged banking company's senior management feel they can deal with the heads and senior management of the relevant regulatory agencies,” Ely said.

With an OCC charter, the combined bank would have a quicker route to operating nationally and avoid certain legal restrictions in states where they operate.

As state-chartered banks, “both SunTrust and BB&T are somewhat anomalies because most large banks, particularly those that operate in multiple states, opt for national charters because of the federal preemption offered through the OCC charter,” said Arthur Angulo, a managing director at Promontory Financial Group and former senior official at the Federal Reserve Bank of New York.

But if the banks opted to maintain their state-chartered route, that could have advantages too. Both BB&T and SunTrust are the largest institution chartered in their respective home state, meaning the North Carolina and Georgia state regulators also have a lot to gain or lose in the decision.

State regulators tend to have cheaper chartering costs than a national charter with the OCC, Ely said. BB&T, the larger of the two banks, already operates in 15 states and the District of Columbia, proving it can expand through a state-by-state process. The combined bank is estimated to have $324 billion in deposits, reaching more than 10 million households nationwide.

A SunTrust spokesperson said which bank regulator the companies choose “is still under consideration.” BB&T did not respond to requests for comment.

Comptroller of the Currency Joseph Otting recently praised the two banks when asked his thoughts on the merger during an industry luncheon in Washington.

“We do not regulate either one of those financial institutions. However, I do know the executives at both of those two institutions,” Otting said at a Women in Housing & Finance event Feb. 7, the same day the merger was announced. “They’re very well-managed banks and very thoughtful in the way that the approach their markets.”

As the federal bank holding company supervisor, the Fed will likely be involved regardless of which bank charter the companies select, but Democratic lawmakers have criticized the central bank's role in overseeing mergers.

At a Senate Banking Committee hearing Tuesday with Fed Chairman Jerome Powell, Sen. Elizabeth Warren noted that "the Fed has not denied a bank merger in more than 10 years."

“I’ll bet that SunTrust and BB&T looked at that 100% success rate and saw what everyone else sees, and that is that the Fed works for big, rich banks that want to get bigger … and then everyone else pays the price,” Warren said.

One potential sticking point for any bank merger is whether any resulting branch closings would leave communities without financial services and raise regulatory concerns tied to the Community Reinvestment Act. Community groups will have a chance to comment on the BB&T-SunTrust merger, and each federal regulator has a slightly different stance on CRA compliance, which could be a factor in which federal regulator the banks ultimately chose.

While the three federal agencies are considering reforms to CRA compliance, they are said to have disagreements over the process, and the OCC is the only one among the three to seek public comment how to update and streamline the 1977 law.

At a Feb. 21 roundtable with reporters, FDIC Chairman Jelena McWilliams declined to comment on the merger, but said the agency is "cognizant ... of some of the communities losing banking presence, especially in rural communities, and that’s something that we focus on in every merger.”

“As the primary regulator for the majority of the banks in the country, we take a look at those trends and ask: What does it mean for the communities that they serve?” McWilliams said.

Some observers noted that the banks could go with the FDIC because of BB&T's experience with the agency. The FDIC gave the bank an "outstanding" CRA rating in 2017 and, along with the North Carolina Office of the Commissioner of Banks, terminated an anti-money-laundering enforcement action in June. (The Fed has yet to terminate a similar order against the bank's holding company.)

Ken Thomas, president of Miami-based Community Development Fund Advisors, said BB&T's standing as the FDIC's largest charter poses concern if the agency supervises the combined entity.

“Under the supervision of the Fed, BB&T would just be another large bank rather than the dominant one under the FDIC," Thomas wrote in an op-ed Feb. 13. "Good public policy therefore dictates that the resultant bank from the BB&T-SunTrust merger have the Fed as their primary regulator.”

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