WASHINGTON ― A trade group representing community banks on Tuesday called for a moratorium on mergers involving banks with more than $100 billion in assets.
The Independent Community Bankers of America made its pitch to regulators at the first in a series of public hearings the Federal Reserve is holding to review Capital One Financial’s proposed takeover of ING Groep NV’s U.S. online banking portfolio.
Chris Cole, senior vice president of ICBA, said there should be a moratorium on big-bank mergers until Dodd-Frank Wall Street Reform and Consumer Protection Act rules are defined and in force.
“It has been 14 months since the Dodd-Frank Act was passed and we still don’t have a regulatory apparatus in place to deal with those banks over $50 billion in assets … and haven’t figured out an accurate way to measure their systemic risk,” he said.
The Fed is reviewing Capital One’s $9-billion proposed merger, which would create the 7th-largest U.S. bank by assets, according to data from SNL Financial.
The markets are watching the review as a test case for how the U.S. government will treat big-bank mergers after the financial crisis.
Last year’s Dodd-Frank financial oversight law requires U.S. regulators to take systemic risk into account when evaluating a merger, in addition to public benefit, concentration of resources, unfair competition and other factors.
Capital One defended the merger at the hearing, telling the Fed and community groups that big doesn’t necessarily mean risky.
“Dodd-Frank is clear on a key point: There is no automatic finding of increased risk to our financial system in the event one institution acquires another, even if those institutions are relatively large,” said John Finneran, head of corporate reputation and general counsel for Capital One.
Finneran said the merger would actually minimize systemic risk, by giving Capital One — which derives more than half its revenue from credit cards — access to ING’s $80 billion in deposits.
But Cole from ICBA said the Fed should not approve any big mergers until large banks have submitted to regulators “living wills” to serve as blueprints for their dismantling in the event of failure.
The largest banks are expected to start submitting their living wills to regulators by the middle of next year.
Cole also suggested that banking agencies issue special rules explaining systemic risk in the context of mergers and acquisitions.
Fed representatives at the hearing appeared skeptical of a mortatorium, questioning Cole about the economic impact of such a move.