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Denying the application would ice large banks, spook foreign owners and deprive the central bank of a key consolidation tool.
September 19 -
The Federal Reserve is holding public hearings in three cities across the country to review Capital One's proposed purchase of ING Direct. The hearings to be held in San Francisco are half a continent away from the nearest branches of what may become America's fifth largest bank. Without branches, the bank's responsibility to California cities and counties is not clear under regulators' current interpretation of the federal Community Reinvestment Act.
September 19 -
The Fed governor said systemic risk could be a factor, but not the entire reason an acquisition is rejected. His comments come as the central bank weighs whether to block the merger of Capital One and ING.
September 15
WASHINGTON — Community banks on Tuesday vehemently opposed Capital One Financial Inc.'s proposed $9 billion acquisition of ING Direct USA, saying such a deal would increase systemic risk.
"Not only are the large banks getting larger, their funding advantage over community banks, which has been estimated to be approximately 50 basis points, appears to be getting even larger," said Christopher Cole, senior vice president and senior regulatory counsel for the Independent Community Bankers of America, testifying at the first of three public hearings being held by the Federal Reserve Board on the deal.
If the Fed approves the acquisition, it would add to the number of potentially too-big-to-fail banks that could be bailed out if there was another financial crisis, said Cole.
Instead, the ICBA called for a moratorium on all acquisitions of institutions with assets more than $100 billion until there is a regulatory apparatus to deal with systemically important financial institutions, including the submission of living wills, another round of stress testing and more changes.
Till now, Cole said, regulators have not found "an accurate way to measure systemic risk nor have the regulators come up with a method to identify the nonbank SIFIs." Until it does, such deals should be barred even if it takes several years.
The pending acquisition being reviewed by the Fed has sparked criticism from community groups and affordable housing advocates who have argued that the deal would create another too-big-to-fail financial institution.
John Finneran, head of corporate reputation and governance, general counsel and corporate secretary of Capital One, said the proposed deal would in fact do the opposite by reducing the systemic risk.
"The combined organization will remain a traditional consumer and commercial bank with none of the complexity or interconnectivity that the Dodd-Frank Act sought to address in ending the concept of too big to fail," said Finneran at the hearing. "In fact, the acquisition of ING Direct will further reduce, rather than increase, any risk to the financial system, as well as the overall risk profiles of both institutions on a stand-alone basis."
Reiterating a point made last week by Fed Gov. Daniel Tarullo, Finneran said that Congress did not prohibit acquisitions by bank holding companies with $50 billion or more in total assets based only on systemic risk.
"Congress, instead, chose to continue requiring the appropriate federal banking agencies to evaluate a proposed acquisition on a case-by-case basis," said Finneran.
ING's general counsel Kristine Wellman said the combined companies would create a strong, profitable and leading company, offering its 7 million consumers a broad range of products.
If approved, Capital One plans to keep ING as a separate savings plan for some time in the future, said Finneran.
Separately, ICBA and the National Community Reinvestment Coalition raised serious doubts over Capital One's ability to increase consumer lending — much needed to help an economic recovery — given that it's a largely credit card lender.
Additionally, NCRC's president and chief executive, John Taylor, said Capital One's monoline business, with 75% of its revenue deriving from credit cards, would expose it to risks not seen in more diversified firms.
