Despite joining bailout, BB&T says it prefers free market
BB&T, which has donated over $30 million to colleges to teach free-market principles, says it opted to participate in the federal government’s $700 billion bailout of the financial industry because it was the right thing to do.
“The Treasury is encouraging banks to participate,” says Bob Denham, director of corporate communications for the bank, which is based in Winston-Salem, N.C. “With the way the economy is, we almost have a business obligation to support the Treasury.”
But Denham says BB&T’s decision to accept $3.1 billion in return for giving the federal government preferred stock “doesn’t change” the belief by John Allison, its CEO, in the philosophy of Ayn Rand that champions free markets and paints government as the nemesis of capitalism.
“It’s all about helping the financial market, easing credit in the financial markets and creating liquidity,” Denham says. “We have regulators and it’s important that when they ask us to help solve a liquidity crisis, that we want to be at least viewed as a team player.”
Allison reportedly struggled over the decision, trying to reconcile his belief in free-enterprise principles with his sense of obligation to support the government’s financial recovery plan.
Denham declines to comment on details of Allison’s decision-making process but says BB&T was concerned the bailout would give ailing banks an unfair advantage over healthy banks like BB&T that have avoided financial trouble by refusing to make loans to unqualified borrowers.
“We have an obligation to remain in business and maintain our competitive advantage, and from a business perspective, it simply makes sense to take advantage of the same low-cost capital costs as our other competitors,” Denham says.
Banking industry insiders say the U.S. Treasury Department pressured healthy banks to participate in the bailout plan and has the power to punish banks that do not participate.
Denham says the bailout plan actually hurts healthy banks like BB&T by, for example, increasing the premiums it pays the Federal Deposit Insurance Corporation to protect depositors, and increasing the costs it likely will pay the Federal Reserve Bank for overnight borrowing.
“Now we are being punished by the bailout plan for having followed our values, and everyone else is being let off the hook,” he says. “The bailout plan is for the banks and investment banks that were poorly managed.”
BB&T has been able to weather the credit crisis through years of putting into practice the moral values Rand spelled out in her novel Atlas Shrugged, Denham says.
Under the leadership of Ken Chalk, who recently retired as chief credit officer at BB&T, the bank over the past 20 years has created a “conservative credit culture that really has shined for us these last several years,” Denham says.
“And it really steered us through these crazy loans," he says, "and we decided we were not going to make those loans, we were not going to be involved in that kind of crazy lending.”
Among the principles championed in Atlas Shrugged is that of “trading” that creates a “win-win for both sides,” Denham says. “And the idea is that when we make a loan to a client, it needs to be good for them and it needs to be good for us.”
Over the past 10 years, BB&T has donated over $30 million to over 30 colleges to support the moral study of capitalism, and has made it a condition of those grants that the schools require the teaching of Atlas Shrugged.
“We absolutely believe that government has involved itself too much in this crisis,” Denham says. “We’re already too regulated.”
But BB&T also needs to face the reality of the marketplace, he says.
“We’re a business, and we’ve got shareholders and we’ve got employees,” he says. “We’re probably one of the strongest capitalized institutions in the United States. And here we are being hurt by a rescue plan that is actually a bailout for poorly managed financial companies.”
As details of the bailout emerge, Americans will begin to see how reluctant players like healthy banks and unwitting players like taxpayers have been drawn into a massive financial gamble by the government.
That gamble will pour billions of dollars into the financial sector that otherwise might have been used directly to address critical social problems we face.
And those social problems, which are escalating in large part because of the financial crisis, are putting growing demand on nonprofits and private philanthropy.