Caution and complex evaluation are nothing new for the ""Federal Reserve"":http://www.federalreserve.gov/, but federal regulators exploring ""Capital One Financial Corp.'s"":https://www.capitalone.com/ potential acquisition of ""ING Groep NV's"":http://www.ing.com/ online banking platform, ""ING Direct USA"":https://home.ingdirect.com/index.html, are applying extreme examination to the transaction. According to the Fed, Capital One's proposed purchase of ING's U.S. Web-based banking business would create a financial institution so enormous and complicated that it could affect the broader marketplace.[IMAGE]
The Fed issued a letter to Capital One, the nation's ninth-largest bank based on deposits, in August asking for answers to numerous queries; the two-page request included questions targeting specific dollar-volumes for various financial market activities by both institutions, especially those related to commercial mortgage-backed securities, foreign-exchange swaps, and derivatives trading.
Additionally, regulators are demanding information regarding markets in which either financial entity could be considered a ""market maker,"" while also looking into any exposure to secondary or counter parties adjacent to the transaction.
Financial industry analysts have stated that the questions aimed at Capital One set a new precedent in information gathering by the Fed, and many of the requests made of the bank surrounding the acquisition have never before been a part of the Fed's evaluation of such a transaction.
Federal regulators appear to be acting on new standards for acquisition oversight set forth in portions of the Dodd-Frank Act that took effect last year, many of which mandate stricter examination of mergers of all types.[COLUMN_BREAK]
As it stands now, Capital One will pay an estimated $9 billion for ING Direct USA, and the acquisition would make the financial institution the fifth-largest bank in the country by deposits, resulting in total assets of $300 billion.
Capital One released a company statement indicating that it had responded to the Fed's inquiries as of early September, and the bank elaborated on scrutiny of regulators, commenting in part, ""We are not engaged in the kind or level of activities that raise the systemic risk issues that the Dodd-Frank Act sought to address.""
Federal regulators will initiate public meetings with Capital One in late September to further delve into the transaction, and current concerns surrounding the acquisition include the possibility of excessive risk is such a large bank is formed from the deal and the complex, intertwined nature of the resulting financial institution.
The last known transaction conducted with equal intensity by the Fed was the 2008 move that allowed Bank of America to purchase Countrywide Financial Corp.
Reaction around the industry has been mixed. Chairman of the House Financial Services Committee, Rep. Spencer Bachus (R-Alabama), recently said, ""With the banning industry dominated by much larger institutions, claims that a bank with 1 percent of total U.S. banking liabilities would be 'too-big-to-fail' seem unreasonable."" Meanwhile, John Taylor, president of the National Community Reinvestment Coalition and supporter of the Fed's scrutiny, said, ""In the past, there was this carte blanche adherence to the notion that bigger s better ├â┬ó├óÔÇÜ┬¼├é┬ª a riskier financial institution that the taxpayer could be on the hook for.""
In banking circles, many have expressed surprise, with Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc., telling the _Wall Street Journal_ that the reaction of the Fed was unexpected since, ""it didn't put Capital One into any new business line or do anything that rang bells.""
Capital One also recently announced that it will attempt to buy ""HSBC Holdings PL"":http://www.hsbc.com/1/2/C; the bank's plans indicate it will purchase the U.S. credit card business of HSBC for around $2.6 billion. Should Capital One secure and finalize both deals, it will become the seventh-largest bank in the U.S. by assets.