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ICBA Recommends Moratorium on Acquisitions and Mergers for Financial Institutions $100 Billion and Up

Washington, D.C. (September 20, 2011)—Independent Community Bankers of America (ICBA) Senior Vice President and Senior Regulatory Counsel Chris Cole today told the Federal Reserve during a hearing about the acquisition of ING Direct USA by Capital One Financial Corp. that the association has concerns with the continued concentration of banks assets and its effect on bank competition, communities and consumers in cities and towns throughout the country.

“ICBA’s primary concern with the acquisition involves systemic risk,” Cole said.  “With assets of over $300 billion, this acquisition will catapult Capital One into the fifth largest bank from the standpoint of deposits from eighth place.  ICBA recommends that banking regulators should impose a moratorium on all acquisitions and mergers involving financial institutions with over $100 billion in assets, including Capital One’s acquisition of ING Direct USA.” 

Cole went on to say that one of the critical goals of the Dodd-Frank Wall Street Reform and Consumer Protection Act was not only to end too-big-to-fail, but also to level the playing field between the megabanks and the rest of the industry.  So far, community banks have not seen much movement towards either goal.

Although the Capital One acquisition will not increase significantly the concentration of the top five banks, it does increase the number of banks over $300 billion, thus adding to the number of potentially too-big-to-fail banks that may have to be bailed out if we had another economic crisis. “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,” Cole said. 

Cole said that even though it has been 14 months since the Dodd-Frank Act was passed, there still isn’t a regulatory apparatus in place to deal with those banks over $50 billion in assets—commonly referred to as Systemically Important Financial Institutions or “SIFIs.”  Neither is there an accurate way to measure their systemic risk nor have the regulators come up with a method to identify the nonbank SIFIs. 

Since the banking regulators don’t have sufficient information yet to exactly determine the systemic risk that SIFIs pose to our economic system or how SIFIs can be safely and quickly resolved if there was another economic crisis, Cole said that ICBA strongly recommends the following:

• Regulators should impose a moratorium on all acquisitions and mergers involving financial institutions with over $100 billion in assets, including Capital One’s acquisition of ING Direct USA, until at such time that the Dodd-Frank regulatory process has been completed, SIFIs have filed all their contingent resolution plans, and the regulators have a better idea of each SIFI’s potential systemic risk. 

• Banking agencies should immediately issue rules under Section 604 of Dodd-Frank that would establish standards for evaluating systemic risk involving SIFI mergers and acquisitions.  Such standards should start with the presumption that any acquisition or merger that increases the number of institutions over $100 billion poses a systemic risk to our economy since it increases the potential number of institutions that are too big to fail. 

“Community banks were the common sense lenders during the economic crisis,” Cole said.  “When community banks thrive they create a diverse, competitive financial services sector offering real choice, including customized products, to consumers and small businesses alike. An economy dominated by a small number of large banks wielding undue market power and offering commodity products would not provide the same level of competitive pricing and choice. Promoting a vibrant community banking sector should be important public policy goal.”

For more information and to read Cole’s testimony, please contact Aleis Stokes at (202) 821-4457 or visit www.icba.org

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