Mid-sized banks that mostly let Wall Street and small firmsspeak for the industry during the debate over the Dodd-Frank Acthave decided it's time to carve out their own agenda inWashington.

Companies including U.S. Bancorp, SunTrust Banks Inc., PNCFinancial Services Group Inc. and Regions Financial Corp. areopening their own lobbying shops and staffing them with seasonedWashington hands. Regulators and lawmakers have begun to payattention as the banks argue for changes in how they're affected byDodd-Frank rules including the so-called Volcker ban on proprietarytrading and procedures for unwinding failed banks.

Executives and lobbyists for regional banks say they should betreated differently by agencies implementing the new regulations,because they focus on traditional deposits and lending rather thanthe higher-risk activities of firms such as JPMorgan Chase &Co. and Goldman Sachs Group Inc.

“We are not Wall Street banks but we face the same regulatoryregime as a Wall Street bank,” said Mark Oesterle, a lobbyist forSunTrust who formerly served as an aide to Senator Richard Shelbyof Alabama, the top Republican on the Senate Banking Committee.

Regional banks tend to have more than $50 billion in assets,mostly in commercial and retail loans rather than complexinvestment banking products. Their size is well short of a WellsFargo & Co., which is 20 times larger with assets of more than$1 trillion. Most have a distinct geographical footprint, likeRegions in the South. There are about a dozen such firms in theU.S. who have become active in Washington.

Atlanta-based SunTrust spent less than $5,000 on lobbying in2011 and 2010, according to federal records. So far in 2012, thebank has reported spending $75,000.

Other banks are opening their checkbooks even wider. PNC, basedin Pittsburgh, reported spending $570,000 in 2010, $1.53 million in2011 and $750,000 so far this year, records show. Regions, ofBirmingham, Alabama, spent $540,000 in 2010, $1 million last yearand $890,000 so far in 2012.

Cincinnati, Ohio-based Fifth Third Bancorp., which spent$145,000 in 2010 and $680,000 so far this year, hired Eric Rizzo, aformer congressional aide and insurance industry lobbyist, to opena Washington office in June 2011.

“We needed to beef up, to have that day-to-day presence inWashington,” Tom Ruebel, the bank's Columbus, Ohio-based directorof government affairs. “It's not just Dodd-Frank implementation buta long-term investment for us.”

'Vast Difference'

Ruebel said in an interview that the bank is looking to 2013,when a new Congress might revisit parts of Dodd-Frank. “If thereare any decisions that different pieces of Dodd-Frank need a look,we want to be there,” he said.

Jaret Seiberg, a senior policy analyst with Washington ResearchGroup, a unit of Guggenheim Securities, said the banks are in aseparate class because they mobilize savings for productive use byturning retail deposits into commercial loans.

“There's a vast difference between a $100 billion regional bankand JPMorgan,” Seiberg said. “Congress views the institutionsdifferently. The regulators view them differently. So it makes allthe sense in the world that they would want to be representeddifferently. They should have done it five years ago.”

While regional banks hired outside lobbyists in Washingtonbefore Dodd-Frank, none had their own offices with full-timerepresentatives, except for Capital One Financial Corp., which isbased in nearby McLean, Virginia.

Regions, for example, sometimes flew Chris Scribner, anexecutive at its Birmingham headquarters, to Washington to tend tofederal policy. Now Scribner works in the nation's capital underBrian Smith, a former lobbyist for government-backed mortgagecompany Freddie Mac.

Minneapolis-based U.S. Bancorp lured Kevin MacMillan, a formerTreasury Department legislative affairs official, from Bank ofAmerica Corp. BB&T Corp. of Winston-Salem, North Carolina,tapped John Hardage, previously a congressional liaison at theOffice of Comptroller of the Currency. PNC hired Vince Randazzo,who worked for the House Financial Services Committee.

“There was this view on the Hill that you were either a smallcommunity bank or a mega-bank,” Smith, of Regions, said in aninterview. “We felt like the middle child.”

Representative Barney Frank, the Massachusetts Democrat who wasthen head of the House Financial Services Committee, said that wasbasically true during the debate on the law. “I don't rememberhearing from them at all,” Frank said in an interview. “And itwould have mattered.”

Dodd-Frank Threshold

Despite the new lobbying firepower, the regional banks havelimited room for change when it comes to Dodd-Frank rules. The lawspecifies that institutions with more than $50 billion in assetsare subject to the most stringent requirements, a thresholdexceeded by most of the firms.

What the regional firms can do is ask regulators to account fordifferences among banks when they write the details. For example,agencies are now completing the rule that requires companiesdesignated as systemically important to draw up “living wills,”blueprints for how they could be dismantled in an orderly way ifthey neared insolvency.

Lawmakers included the rule in Dodd-Frank to avoid repeating thedilemma of the 2008 credit crisis: to pay for a bailout for afailing firm, like the government did for American InternationalGroup Inc., or let it collapse, as regulators decided in the caseof Lehman Brothers Holdings Inc.

In a letter to the Federal Reserve, 10 regional banks bandedtogether to ask that the living will rule be tailored to accountfor firms with simple structures. What made the crisis difficultwas not so much the size of a troubled company like Lehman but thatit was a “large, interconnected investment banking firm withsubstantial nonbank and foreign operations,” they wrote on June 10,2011.

“Living wills is a great example of a rule that never shouldhave applied to these guys,” said Karen Shaw Petrou, managingpartner of Washington-based Federal Financial Analytics Inc. “Thatdoesn't mean it shouldn't have an appropriate recovery plan, but itisn't the same as JPMorgan Chase and Blackrock Inc.”

The regional banks' push to distinguish themselves in Washingtoncomes as their profits outperform their larger rivals. They aremaking gains as reduced trading activity and troubled investmentsmade before the credit crisis have damped earnings and curbedcompensation at the bigger firms.

Larger investment banks are cutting jobs as revenue growth ebbs.That has given regional banks a change to pick up market share.

Financial Health

Very large banks lag their regional counterparts in return onequity, a measure of profitability, according to data compiled byBloomberg. For example, Goldman Sachs returned 5.2 percent in thesecond quarter of 2012, while Bank of America had 4.7 percent.Buffalo, New York-based M&T Bank Corp. returned 8.2 percent inthat period while Fifth Third hit 11.5 percent.

The financial health of U.S. Bancorp — it returned 16.5 percentin the second quarter — has enlarged the clout of its chiefexecutive officer, Richard K. Davis. He served in 2010 as chairmanof the Financial Services Roundtable, a banking trade group, andhas met more than once with President Barack Obama to discusseconomic policy.

Regional banks are “pretty boring” and “pretty consistent” intheir business, Davis said in December.

That theme is echoed in the joint comment letters that theregional banks sent to regulators on Volcker and the living-willproposal, as well as on swap-trading rules and pending requirementsfor capital buffers under the international Basel agreement.

CEOs of eight banks including U.S. Bancorp, Fifth Third, PNC,Northern Trust Corp. and M&T Bank met with Treasury SecretaryTimothy F. Geithner and Deputy Secretary Neal Wolin in May. And 12regional bank executives met in July with Federal Reserveofficials, including Fed Governor Daniel Tarullo, in part todiscuss the Volcker rule.

The regional banks said the Volcker proposal would require themto set up expensive compliance programs even though they don'tengage in the risky trading the rule prohibits.

“The proposal as written will cause each of our organizations tocomply with many, if not all, of the same requirements applicableto the largest financial firms with substantial trading volume andcovered fund investments,” PNC, U.S. Bancorp, Capital One,SunTrust, Fifth Third, BB&T, Regions and Cleveland-basedKeyCorp wrote in a Feb. 3 letter to regulators.

Not 'Hostile'

The position drew support from six members of the Senate BankingCommittee, including Senators Mark Warner, a Democrat of Virginia,and Mike Crapo, a Republican of Idaho, who wrote to regulators onFeb. 16 that compliance costs “could cause some banks to exitcertain types of activities that provide liquidity to theircustomers and are permitted by the Volcker Rule.”

Frank said the regulators have the flexibility to reducecompliance costs on regional banks. “They are assuming theregulators are stupid or hostile, and I don't think they arehostile,” Frank said.

The Fed's Tarullo has recognized the role of regional banks ashe warns of the systemic risks posed by the largest Wall Streetfirms. For example, he said on June 6 that there would be a slidingscale for the capital surcharges to ease the burden on banks withover $50 billion in assets that aren't among the largest playerslike Bank of America or JPMorgan.

That idea won support from lawmakers. In an Aug. 7 letter to theFed, Senators David Vitter, a Republican from Louisiana, andSherrod Brown, a Democrat from Ohio, said they backed a graduatedcapital level for regional banks. They said the Fed “should keep inmind the distinctions between money-center banks and regionalbanks.”

Tarullo also suggested that if it turned out, as Wall Streetbanks have claimed, that Basel rules crimp their ability to lendmoney, then smaller institutions could fill the void.

“To the degree that systemically important institutions find theadditional capital requirement makes some lending unprofitable,that lending could be assumed by smaller banks that do not posesimilar systemic risk and thus have lower capital requirements,”Tarullo said in a June 2011 speech.

While the regional bank lobbyists have been holding monthlyconference calls and meeting in person every three months, theyhaven't yet taken the step of forming their own trade group andhaven't opposed the agenda of the big banks. They remain members ofthe American Bankers Association, which counts all the largeinstitutions among its ranks.

Member Needs

The regional banks aren't part of the Independent CommunityBankers of America, which on its website claims nearly 5,000members with assets between $3 million and $17 billion.

Wayne Abernathy, executive vice president of the ABA, said hisassociation has tried to show the regional banks that it cancontinue to represent their interests in Washington.

“It keeps us on our toes, to make sure as a trade associationthat we meet the needs of all our members,” Abernathy said.

Bloomberg News

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