Huge Bank Rip-Off
by John Brown
Issue 134 - June 24, 2009

Imagine that a banker would have the courage and integrity to say publicly that the government bailout was a rip-off for the banks! That is precisely what BB&T's Chairman, John Allison told a large audience at the Competitive Enterprise Institute’s 20th Anniversary dinner in Washington this month. As the witty Wall Street blog StreetInsider.com put it, Allison

unloaded on U.S. federal regulators which he said "strong-armed" healthy banks into participating in the controversial TARP ( Troubled Asset Relief Program) . The exec told the audience that the TARP "was a huge rip-off for us", a comment which caused listeners to jump up in enthusiastic agreement.

As Judith Burns noted in the Wall Street Journal on-line, Allison “complained that the Winston-Salem bank was paying 9% on federal borrowing ‘we didn't want in the first place.’” He said healthy banks were forced into the $700 billion federal bailout so as not to adversely affect failing financial firms, an approach he said conflicts with "the American sense of life."

Burns remarked on the coincidence that Kenneth Lewis of Bank of America testified to Congress the same day that he was “strongly advised” by government officials to acquire the failing Merrill Lynch against his better judgment.

Allison denied the contention that deregulation caused the financial crisis. He said the government "misregulated" rather than deregulated. Explicit government programs to force mortgages to high-risk home borrowers by government-supported mortgage lenders Fannie Mae and Freddie Mac in conjunction with extraordinarily low Federal Reserve interest rates were the major causes, he insisted.

Allison predicted there would be "some kind of economic recovery" but would not say it would be long-lasting. Indeed, banks like his are not lending what they would like "because the regulators are all over us."

The good news is that BB&T is one of 10 banks planning to return the government bailout funds.

StreetInsider.com summed it best:

The BB&T exec blamed the current financial mess on the Fed, which kept interest rates too low for too long, according to Allison. Apparently looking for more blood-boiling comments for government officials to roil over, Allison concluded the speech by saying that ‘It's a myth that regulators are encouraging banks to make loans.’ Ouch.”