March 23, 2015

The Honorable Richard Shelby
Senate Committee on Banking, Housing & Urban Affairs
534 Dirksen Senate Office Building
Washington, D.C. 20510

The Honorable Sherrod Brown
Ranking Member
Senate Committee on Banking, Housing & Urban Affairs
534 Dirksen Senate Office Building
Washington, D.C. 20510

Dear Chairman Shelby and Ranking Member Brown:

The Regional Bank Coalition and its members – SunTrust, Regions, Huntington, Fifth Third, Capital One, BMO Financial, BBVA Compass, BB&T, Bank of the West, and American Express – applaud the Senate Banking Committee for holding hearings examining the appropriate regulatory regime for regional banks. Regional banks, which overwhelmingly focus on straightforward lending in communities in all 50 states, believe that regulation based on risk – not arbitrary asset thresholds – will assure bank safety and soundness, unlock economic growth in the communities we serve, and allow regulators to focus their attention on those institutions that do pose systemic risk to the financial system and the economy.

When the Dodd-Frank Act was enacted, it imposed significant systemic risk regulations on regional banks based on an arbitrary asset threshold of $50 billion, rather than taking into account a bank’s true risk profile or business model. At the time of its enactment, neither regulators nor Congress had developed a more sophisticated method for measuring systemic risk.

Since then, however, the Federal Reserve, the Financial Stability Board and the Basel Committee for Bank Supervision have used a test that examines five factors to measure systemic risk: size, interconnectedness, complexity, global activity, and dominance in certain customer services, also known as substitutability. The Treasury Department’s Office of Financial Research recently applied those factors in examining the riskiness of U.S. banks; their analysis found that the largest global systemically important banks (G-SIBs) had a systemic risk score of 5.05 percent and 4.27 percent. None of the regional banks listed in the report have scores exceeding 0.35 percent.

Regional banks scored well in that analysis because they focus the core of their business on traditional banking activity, not on riskier, more complex lines of business. Regional banks hold assets predominantly in insured depository institutions, have limited broker-dealer or other non-bank operations, do not have significant cross-border operations, and do not rely to a significant degree on short-term wholesale funding.

For example, core deposits, as a percentage of total assets, are, on average, approximately 72% for regional banks, as compared to approximately 29% for G-SIBs. Reverse repurchase agreements average less than 1% for regional banks, as opposed to 15% for G-SIBs. Securities sold or subject to repurchase, as a percentage of total liabilities, are approximately 1% for regional banks, as opposed to 11% for G-SIBs.

Regional banks also hold far fewer foreign deposits and make far fewer foreign loans. They face far less exposure to derivatives, collectively holding approximately 1% of outstanding contracts in the derivatives markets. As the following table makes clear, regional banks’ business operations look nothing like those of the globally systemic important banks.

Table: Assets & Liabilities of Regional Banks vs. Systemically Important Banks

  Regional Banks U.S. G-SIBs
Core deposits, as % of total assets 72% 29%
Reverse repurchase agreements <1% 15%
Securities sold or subject to repurchase 1% 11%
Foreign deposits 1% 28%
Foreign Loans <1% 18%
Broker Dealer Assets <1% 19%
Notional Value of Derivative Contracts, as % of total assets <54% 2549%

Even though regional banks do not pose a systemic risk to the economy, the Dodd-Frank Act has imposed significant additional capital and regulatory requirements. To be clear, regional banks support robust regulation to assure safety and soundness. But applying regulations meant for globally systemic banks to banks that do not pose the same risk to the economy only diverts capital that could be otherwise spent on traditional lending activities that fuel the economy.

The Regional Bank Coalition supports a tailored, balanced regulatory structure that acknowledges that risk is not measured by asset size alone, but instead accounts for the diversity, resilience, and utility of different banking sectors. We hope the committee will pursue these important reforms, and we would be glad to work with its members as you move forward.


William Moore
Executive Director