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Capital One to join TBTF club?

By Claes Bell, CFA · Bankrate.com
Tuesday, September 13, 2011
Posted: 4 pm ET

Ever feel a little bit afraid to drive across a new or newly repaired bridge? That's probably how the Fed is feeling a little bit right now when it comes to testing out a new banking regulation.

Capital One's proposed merger with ING and HSBC is providing the first big test of a Dodd-Frank measure requiring the Fed to scrutinize and potentially nix mergers that could add to the ranks of "Too Big to Fail" financial institutions so large their failure would threaten the financial system.

From Victoria McGrane and Maya Jackson Randall at The Wall Street Journal:

Capital One, the ninth-largest bank in the U.S. by deposits, was pressed by the Fed in an Aug. 29 letter for details about "the nature and dollar volume" of financial activities in which both companies are involved. The two-page letter also listed various financial markets that were troubled during the financial crisis, such as commercial paper, mortgage-backed securities, lending to foreign institutions through foreign-exchange swaps and derivatives trading.

Some banking-industry observers said they couldn't recall any previous proposed acquisitions in which the Fed asked some of the questions sent to Capital One. Above, a Capital One branch in New York last month.

Fed officials asked Capital One to describe any markets where the McLean, Va., bank and ING Direct USA are market makers and to report information about exposure to counterparties.

Several banking-industry experts said they couldn't recall any previous proposed acquisitions where the Fed asked some of the questions sent to Capital One.

The article goes on to say that if the mergers go through, Capital One would be the fifth largest bank in the country by deposits and the seventh biggest by assets.

I'm glad regulators are going to have to take a closer look at applicants to the "Too Big To Fail" club going forward. Had they been a little more skeptical of big bank mergers in the go-go '90s and aughts, we'd probably be better off now.

Still, I wish the Fed would spend a little more time looking at the concerns of accountholders when it's considering approving mergers. As I've written about on this blog before, mergers can be extremely disruptive to customers, affecting everything from branches to interest rates. Just yesterday one of the political commentators I follow on Twitter posted the following:

"I can't get an old bank statement because Chase ate my old bank, ugh."

That's a valid concern, and one I hadn't considered before. Access to old statements can be really, really important, especially at tax season. During my freelancing days, I often turned to bank statements before to find and tally business expenses paid, since I wasn't always amazing at holding on to old bills and receipts. Any disruption to that access would have been really tough to deal with.

What do you think? Do bank mergers negatively affect customers? Should the Fed take that into account when approving mergers?

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