By Micah Maidenberg

September 28, 2011

 

Among those who gathered yesterday at the Federal Reserve Bank of Chicago to testify about Capital One bank’s proposed acquisition of ING: federal regulators, corporate attorneys, nonprofit developers, policy analysts, community revitalization advocates, housing directors, small business operators and investment managers.

 

The acquisition is a huge deal after all, quite literally: the $9 billion deal would create the country’s fifth largest bank if regulators sign off on it. But consumer advocates and financial watchdogs have come out against the merger.

 

John Taylor, president of the National Community Reinvestment Coalition, believes that Capitol One’s business is unsound, since three-quarters of its income is based on credit cards. That, in turn, could pose a broader risk to the economy should the bank fail, he said.

 

“If you approve this acquisition,” Taylor said at a hearing about the deal held earlier this month in Washington, “the next ‘too-big-to-fail bank’ will be the ‘most-likely-to-fail bank’ because it is the least diversified and most at-risk in economic downturns.”

 

The Woodstock Institute, a Chicago-based research and advocacy group, also opposes the deal, again citing the bank’s reliance on credit cards. Woodstock also has criticized Capital One for its community reinvestment strategies and says the proposal does not “present any clear public benefit of a combined institution.”

 

John Finneran, the bank’s general counsel, denied, during the Washington hearing about the proposed merger, that the deal would create another bank that was “too big to fail.”

 

“Capital One’s strong capital position and prudent risk management has enabled it to emerge from the Great Recession as one of the strongest financial institutions in the country,” he said. “Neither Capital One nor ING Direct has engaged in the kinds of activities that precipitated the financial crisis, including the structuring or sale of mortgage-backed securities, collateralized debt obligations, credit default swaps or other exotic instruments.”

 

The bank will commit $180 million in community lending over a 10-year period as part of the deal, Finneran said.

 

Check out more background materials about the deal at the Federal Reserve’s site. The Chicago hearing was the second of three the Federal Reserve is holding about the potential merger. The first was convened September 20 in Washington, D.C.; the last is scheduled for October 5 in San Francisco.

 

 

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