Now the ink is barely dry on the Dodd-Frank Act and big regional banks, prodded by Wall Street dealmakers and analysts, are once again in merger and acquisition mode. And if regulators let it happen, you can bet your “Citi Never Sleeps” coffee mug that the next wave of consolidation will produce even more trillion-dollar banks in five years.
Taking the lead are two banks well known to Washingtonians — Capital One, which has struck a deal to buy ING, the online savings bank, and PNC, which has a deal to buy the U.S. operations of the Royal Bank of Canada. Both acquisitions would create banks with roughly $300 billion in assets supporting a wide range of financial services that will get even wider when boom times return.
Because it is the earlier and bigger of the deals, and involves one of the largest and most successful credit card companies, Capital One’s acquisition of ING is likely to set a precedent under Dodd-Frank, which for the first time requires the Federal Reserve to consider impact of a merger on the stability of the financial system. To its credit, the Fed on Friday took the unusual step of scheduling public hearings on the issue.
The Capital One-ING review also comes as a new council of financial regulators consideres whether to designate large insurers, asset managers and finance companies as “systemically important,” subjecting them to closer scrutiny and higher capital standards. The indications are that, other than possibly AIG, none will be designated.
Recall that when Republicans united to oppose Dodd-Frank, they justified it on the basis of their deep concern that not enough was done to deal with the banks that were “too big to fail.” How strange, then, that not a single Republican has questioned the Capital One and PNC deals. Instead, that role has fallen to Democrat Barney Frank, who is intent on seeing that the law that bears his name is actually enforced.
Capital One is a big deal in the Washington regional economy. It is a big employer, an admirable corporate citizen and, under its founder Richard Fairbank, a great entrepreneurial success story. It has grown from its roots in the credit card business to what it hopes will be the country’s fifth-largest bank as well, thanks in part to the purchase of Bethesda-based Chevy Chase Bank. By staying away from shoddy mortgage lending, derivatives trading and investments in mortgage-backed securities, Capital One is the rare large financial institution that never reported an unprofitable year through the financial crisis, despite charge-off rates on credit card loans that at one point reached nearly 10 percent.