Senate committee plans to wind back bank rules

The Senate banking committee chairman proposed the biggest rolling back of financial regulatory reform since the 2008 crisis, potentially releasing about 30 institutions from tough Federal Reserve oversight and reigniting the market for bank deals.

Under draft legislation released by Richard Shelby, the Republican senator from Alabama, the threshold for banks to be designated "systemically important" would be raised significantly from $50bn to $500bn.

There has been some bipartisan support to lift the threshold but raising it by 10 times is a bigger increase than many expected, allowing more banks to escape the Fed's "enhanced supervision" with its onerous requirements including annual "stress tests".

Among the potential beneficiaries is SunTrust, the Atlanta-based bank, whose chief lobbyist, Mark Oesterle, used to be Mr Shelby's chief counsel. SunTrust has $190bn in assets. Mr Oesterle and a spokesman for Mr Shelby declined to comment.

Other banks to potentially escape the burdensome supervision include Regions Financial, the largest bank in Mr Shelby's home state of Alabama, Citizens Financial, in the process of spinning off from Royal Bank of Scotland, American Express and Capital One.

However, the Fed would retain the right to apply its enhanced supervision to banks between $50bn and $500bn in assets while banks larger than $500bn - JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley - would continue to be automatically designated, although the legislation also introduces flexibility into that threshold by having it rise with gross domestic product.

Some foreign banks with worldwide assets between $50bn and $500bn would benefit but the largest, such as Barclays and Deutsche Bank, would not.

The legislation would still need to secure support among Democrats, some of whom, such as vocal bank critic Elizabeth Warren, have already expressed their opposition.

The chief executives of Fifth Third, KeyBank and Huntington, all headquartered in Ohio, wrote to their home senator, Sherrod Brown, this week, the leading Democrat on the banking committee, requesting his support in raising the "arbitrary" threshold of $50bn which is "out of balance with the straightforward nature of our traditional banking model".

In the letter, seen by the Financial Times, the chief executives warned that the "extensive new regulatory compliance [would] force further consolidation in the industry, limiting the availability of traditional banking services of the scale, and at the service levels our customers and your constituents deserve".

However, mergers and acquisitions bankers are watching the legislation closely in the hope that raising the threshold would breathe life into the largely moribund market for deals in the sector.

Banks have been wary of buying competitors if the deal would take them over the $50bn threshold. With a much higher threshold, bankers believe there would be much more potential for consolidation.

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