Fed Delays Meeting on Capital One-ING Direct Deal

WASHINGTON — The Federal Reserve Board on Wednesday unexpectedly postponed its meeting to discuss Capital One Financial Corp.'s $9 billion deal for ING Direct USA until next week, the central bank said.

The Board will now take up the matter in a closed session on Monday, Feb. 13.

While regulators didn't offer a reason for the delay, Capital One spokeswoman Tatiana Stead said the Fed's postponement was due to logistical reasons.

"We understand that the delay is due to a scheduling conflict, and we look forward to their decision early next week," she said in a statement.

The merger proposed in June, which has dragged on for months, has been described by observers as a "test case" for regulators in how they will assess systemic risk — a new requirement under regulations in Dodd-Frank.

Critics have argued that such a merger would create yet another "too big to fail" institution and would put the financial system at grave risk, especially with Capital One's monoline credit card business.

Even so, the Fed's decision to take more time was welcomed by the most vocal of critics — the National Community Reinvestment Coalition.

"We hope the postponement is a sign that the Federal Reserve is listening to issues they raised, and taking additional time to ensure the public understands how this deal will impact them," John Taylor, president and CEO of NCRC said in a statement, citing the nearly 100 taxpayers who called the Fed to raise concerns about its closed meeting. "This delay is yet the latest sign of the seriousness with which the Federal Reserve is observing its duties to protect the American taxpayer."

Ultimately, that's the question the Fed must answer in evaluating the merger. The central bank is tasked with determining whether the public benefit of such a deal would ultimately outweigh any potential risk to the financial system.

Critics have argued that Capital One has done little to demonstrate what public gain would be achieved.

"There needs to be a clear declaration. What we saw in Capital One's proposal was abstract, and in my opinion, meager. We need to know why America will be better. Because I think while it's difficult to quantify, we have a clear understanding why we'll be more exposed to systemic risk," said Bartlett Naylor, financial policy advocate for Public Citizen.

For its part, the credit card company has touted the number of jobs it expects to create, as well as the 7 million new customers and $80 billion in deposits that would result from the ING deal. It has also said that while the merger would make it larger, it would not become riskier.

That hasn't been enough to convince critics.

"I still don't think that overcomes the legitimate concerns that we have about whether this is creating a more systemically risky industry and whether the regulators are really in a position yet to evaluate this risk and control it," said Christopher Cole, senior vice president and senior regulatory counsel for the Independent Community Bankers of America.

The ICBA strongly urged the Fed to block the deal. The trade group called for a moratorium last year on all acquisitions of institutions with assets of more than $100 billion until regulators finalize a new regulatory framework required by the Dodd-Frank Act for systemically important financial institutions.

Despite strong criticism against the deal, the Fed is widely expected to approve the merger.

The central bank held three public hearings in Washington, Chicago and San Francisco to hear from all sides whether to allow Capital One, best known for its credit card operations, to buy the U.S. online banking unit of ING Group.

The European Commission is requiring that the U.S. division to be divested from the company as part of a series of restructuring measures. Capital One has argued that relatively few firms were willing to purchase ING Direct considering how many banks are overloaded with deposits.