Rushing Creation Of 'Too-Big-To-Fail' Bank

Capital One Bank's scant regard for societal good is hardly adequate justification for allowing the significant risk posed by acquisition of ING Direct.

The Record ( — Thursday, August 25, 2011

The Record

In July, Capital One Bank filed an application with the Federal Reserve Board to buy ING Direct for $9 billion.

Despite the fact that, if approved, this monumental transaction will make Capital One the fifth "too big to fail" bank in the United States, the Federal Reserve Board has only allotted 30 days for the public to get the facts regarding the transaction and respond to the filing. This is less time than it takes, on average, to bid and close on the purchase of a modest home.

New Jersey Citizen Action has joined financial reform organizations and consumer advocates across the country in urging the Federal Reserve to extend the comment period for 60 days, until at least Oct. 22, and to hold public hearings across the nation. Consumers need ample opportunity to comment publicly upon the potential impact of this proposal, including the risks and benefits to credit and other financial services.

Given the extreme risks to the public good inherent within the establishment of another "too big to fail" bank, it is critically important that the Federal Reserve conduct a thorough review of this extraordinary filing. The prospect of creating another systemically important financial institution, a.k.a. "a too big to fail bank," is worrisome enough. However, without providing clear and significant benefits to society such a merger is highly questionable. In its 60-page application, Capital One includes only one paragraph regarding alleged "public benefits."' This scant regard for societal good is hardly adequate justification for allowing the significant risk posed by the ING Direct acquisition.

This filing also represents the first true test of the Dodd-Frank Wall Street Reform and Consumer Protection Act requirement that the Federal Reserve Board analyze systemic risk and that the application should be governed by this standard. The process by which the Federal Reserve administers this filing can, and should, establish a precedent for rigorous oversight of mergers and acquisitions that create "too big to fail" banks and which dramatically reduce equitable products and services available to consumers.

In addition to the Capital One proposal to purchase ING Direct, the bank has also indicated that it intends to purchase HSBC's credit card business for $2.6 billion, another giant step towards "too big to fail" status for Capital One. Since the two proposals are related, the Federal Reserve Board should not consider the first one (for Direct) in isolation from the second. This second purchase also raises disturbing questions, given the fact that attorneys general in Minnesota, West Virginia and California have investigated Capital One for engaging in false and misleading credit card marketing. Clearly, these allegations should be explained and resolved before the Federal Reserve even considers approving Capital One's application.

As if these concerns were not serious enough, there are reports that a Capital One FHA policy change has led to lending discrimination by race as well as reports that ING is under investigation by the U.S. Justice Department for alleged violation of sanctions by doing business with Sudan, Iran and Syria. These allegations must also be fully aired and resolved.

Also, the announcement of the HSBC credit card business sale coincides with news that it will be downsizing operations in the United States by selling almost 200 branches in New York and Connecticut. They will close 13 of 21 branches in New Jersey, including the only branch in Newark as well as the Journal Square branch, which is one of only two in Jersey City. HSBC's dramatic departure from the U.S. market will diminish banking services available to consumers in the Northeast.

Reckless banking practices and unprecedented economic disasters of the past several years have left thousands of New Jersey consumers in dire financial straits and with far from secure futures. We cannot afford to allow the creation of another "too big to fail" bank without transparent review and meticulous scrutiny.

The public has the right to comment upon this proposed acquisition, which could push the American economy into greater peril than it already is. New Jersey consumers must demand that the Federal Reserve Board conduct a thorough review of Capital One's application by extending the comment period at least 60 days and holding at least five public hearings across the country, including one within the New Jersey-New York metropolitan area.

David Weiner is president of Communications Workers of America Local 1081. Paulette Eberle is president of Next Step, a disability advocacy organization. Both serve as co-chairmen of New Jersey Citizen Action, a Newark-based citizen watchdog coalition.

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