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Ted Budd: A Champion of Banker’s Interests Over Those of the Country [1]

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Date: 2022-10-24

In 2000, the World Bank argued that several Central Asian countries had been subject to “state capture”, a phenomenon in which private interests are able to corrupt the political process and influence decision-making for their own ends. North Carolina Republican Senate nominee Ted Budd’s relationship with banks is a reminder that even in America, state capture is possible. In a recent piece for the Jacobin magazine, Budd has not only had a close relationship with banks, he has been richly rewarded for that friendship.

In December 2019, Truist Financial Corporation was formed from the merger of Winston-Salem-based BB&T (Branch Banking and Trust Company) and Atlanta-based SunTrust Banks, creating the nation’s sixth largest bank. Today, Truist is the 10th largest bank in the country, with $548 billion in assets. Truist Insurance Holdings is the sixth largest insurance broker, with $30 billion in premiums. That merger deal would not have happened without Budd. Economically, the deal was dangerous. The Great Recession had shown regulators that it was dangerous to have an economy that proliferated with banks that were “too big to fail”. Banks of that scale force us into a moral hazard problem: they know that, regardless of how badly they behave, taxpayers will be forced to come to their aid to save the financial system, whenever their existence is threatened. If banks know they will always be backed because their survival is the survival of the system, then what incentive do they have to behave well? That problem led many regulators to argue that the merger should not go ahead. The 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act ensured that regulators took these concerns to heart.

Bank mergers present a two-sided problem. On the one hand, they are great for investors. Investors hate competition. Consolidated markets mean that large firms can control the price of goods they offer. With price control comes greater profitability. The right merger can be a gold mine. For customers, on the other hand, mergers come at a cost: they mean less competition, higher prices, and higher unemployment. Regulators not only had to worry about the moral hazard problem, they also had to worry about these things as well. Not every merger is a bad idea, but mergers among already large businesses have to be scrutinized because, often, the risks far outweigh the rewards. Bank mergers often make credit more expensive, and harder to access, while also raising unemployment.

Then Representative Ted Budd (R-NC) argued that the Senate hearings were political, and that the law should be re-shaped to allow big banks to merge, because to not do so would make them, “too small to succeed”. He lauded the banks for their strength, and pushed through the changes needed to make the merger possible. Budd was one of the pioneers of the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act, which made mergers such as the BB&T-SunTrust Bank merger, possible.

Truist estimated that the merger would cost $4 billion, and that it would make $1.6 billion in net cost savings from things like closing branches, and consolidating offices. For investors, that may have been a good thing, with the company earning $1.2 billion in profits last year, but for the people of North Carolina, the merger has been a disaster. As Burns reports, last year, the company had more than 1,300 layoffs. This is despite BB&T CEO Kelly King, who became Truist’s first CEO, saying, “Even if we consolidate branches, we pool the employees together because we still have the business. Then sometimes they relocate, but they have jobs.”

Truist’s closure of hundreds of branches has also not been well received. Customers have made thousands of complaints to the Consumer Financial Protection Bureau (CFPB). Meanwhile, Budd has received two loans from the bank since the deal, with at least one having a lower interest rate than the company normally charges. Truist has also donated tens of thousands of dollars to his campaign. Budd has become a symbol of what bankers like to see in politicians: a champion of their interests over those of the public.

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[1] Url: https://www.dailykos.com/stories/2022/10/24/2130989/-Ted-Budd-A-Champion-of-Banker-s-Interests-Over-Those-of-the-Country

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