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August 15, 2011
By Federal Express and Electronic Submission Ms. Jennifer J. Johnson Secretary Board of Governors of the Federal Reserve System 20th Street & Constitution Ave., N.W. Washington, D.C. 20551 Mr. Adam M. Drimer Assistant Vice President Federal Reserve Bank of Richmond 701 E. Byrd Street Richmond, VA 23261-4528 RE: Response to Matters Raised by Commenters on the Notice by Capital One Financial Corporation to the Board of Governors of the Federal Reserve System for Approval to Acquire ING Bank, fsb
Dear Ms. Johnson and Mr. Drimer: Attached is a response of Capital One Financial Corporation, McLean, Virginia (“Capital One”), to assertions in the comment letters that National Community Reinvestment Coalition and Inner City Press/Fair Finance Watch (the “Commenters”), respectively, submitted to the Board of Governors of the Federal Reserve System (the “Board”) in connection with Capital One’s notice to acquire ING Bank, fsb, Wilmington, Delaware (“ING Bank”), and its subsidiaries, Sharebuilder Advisors, LLC and ING Direct Investing, Inc., both of Seattle, Washington, pursuant to sections 4(c)(8) and 4(j) of the Bank Holding Company Act, as amended, 12 U.S.C. §1843(c)(8) and (j) (the “Notice”). As noted in the attachment, Capital One appreciates the opportunity to respond to the matters raised by the Commenters. Capital One will be glad to provide any additional information that the Board or the Federal Reserve Bank of Richmond needs to evaluate the proposal under the relevant statutory factors it must consider in acting on the Notice.
Capital One Financial Corporation 1680 Capital One Drive McLean, VA 22102
As noted below, Capital One is sending today by email and Federal Express copies of this letter and the attachment to each of the Commenters. Sincerely,
Andres L. Navarrete, Esq. Senior Vice President and Chief Counsel - Regulatory
Attachment cc by Email and Federal Express: Kathleen M. O’Day, Esq., Board of Governors Lisa M. DeFerrari, Board of Governors Richard K. Kim, Esq., Wachtell, Lipton, Rosen & Katz (email only) John Taylor, National Community Reinvestment Coalition Matthew R. Lee, Inner City Press/Fair Finance Watch
August 15, 2011
RESPONSE OF CAPITAL ONE FINANCIAL CORPORATION TO THE COMMENT LETTERS SUBMITTED BY NATIONAL COMMUNITY REINVESTMENT COALITION AND INNER CITY PRESS/FAIR FINANCE WATCH TO THE FEDERAL RESERVE SYSTEM Capital One Financial Corporation, McLean, Virginia (“Capital One”), appreciates the opportunity to respond to assertions in the comment letters submitted by National Community Reinvestment Coalition (“NCRC”) and Inner City Press/Fair Finance Watch (“ICP,” and together with NCRC, the “Commenters”) in connection with the notice Capital One submitted to the Board of Governors of the Federal Reserve System (the “Board”) on July 15, 2011 (the “Notice.”), to acquire all the outstanding shares of common stock of ING Bank, fsb, Wilmington, Delaware (“ING Bank”), and its subsidiaries, Sharebuilder Advisors, LLC and ING Direct Investing, Inc., both of Seattle, Washington (the “Acquisition”), pursuant to section 4(c)(8) and 4(j) of the Bank Holding Company Act of 1956, as amended (the “BHC Act”). The assertions in the letter directed to Capital One or ING Bank focus primarily on the retail lending records of Capital One and ING Bank and other aspects of their records in meeting the needs of their respective communities, the sufficiency of the public benefits of the Acquisition, and the potential for systemic risk resulting from the proposal. In addition, the Commenters’ letters include requests that the Board extend the comment period and hold public hearings on the Notice.1 For the reasons set forth below, Capital One believes that the record of the notice clearly supports approval of the Acquisition. As demonstrated in the Notice, the Acquisition satisfies all the financial, managerial, competitive, public benefits and other factors the Board must consider in acting on the Notice under the BHC Act. In addition, Capital One’s proven record of meeting the needs of the communities it serves is evidenced by the Community Reinvestment Act (“CRA”) performance records of its subsidiary banks, Capital One Bank (USA), National Association (“COBNA”) and Capital One, National Association (“CONA”). As noted in the Notice, the banks’ primary federal supervisors rated the CRA performance of COBNA as “Outstanding” and CONA as “Satisfactory” at their most recent CRA performance evaluations.2 In addition, ING Bank’s CRA performance was rated “Outstanding” at its last evaluation by the Office of Thrift Supervision (“OTS”). Capital One also has implemented robust compliance risk management systems to ensure compliance with fair lending and other consumer protection laws. Moreover, the Acquisition will provide strong public benefits by providing customers of ING Bank with access to a much broader array of deposit and loan products that ING Bank does not currently offer, including fixed-rate home mortgage loans, and a broad network of automated teller machines (“ATMs”). The Acquisition also would not result
This response does not address other unsubstantiated allegations or assertions by the Commenters. These evaluations were conducted in 2007. COBNA was a state-chartered member bank at that time, and the evaluation was performed by the Federal Reserve Bank of Richmond. CONA’s evaluation was performed by the Office of the Comptroller of the Currency (the “OCC”).
in greater or more concentrated risks to the stability of the U.S. banking or financial system. Accordingly, the balance of the public interest factors, as well as the other statutory factors, the Board must consider in acting on the Notice are consistent with approval. In addition, the comment period on the Notice provides ample time for the Commenters and other members of the public to submit comments on the Notice. The Commenters also have failed to identify material issues of fact in dispute or otherwise justify the need for a public hearing on the Notice. Comment Letter Assertions Lending Record of Capital One Fair Lending Compliance. ICP alleged, based on data reported under the Home Mortgage Disclosure Act in 2009, that Capital One engaged in disparate treatment of African American borrowers in connection with its home mortgage lending, specifically, in the Washington DC (Washington-Arlington-Alexandria) Metropolitan Statistical Area (“Washington MSA”). ICP cites the following 2009 HMDA data as support for its allegations: (1) Capital One made 102 conventional home purchase loans to whites, compared to 11 of such loans to African Americans; and (2) Capital One made 74 loans guaranteed by the Federal Housing Administration (“FHA”) or Veterans Administration (“VA”) to whites compared to 25 of such loans to African Americans. Capital One has placed the highest priority on strict compliance with fair lending laws and regulations and is proud of its fair lending compliance record. As an initial matter, the mortgage lending statistics cited by ICP when compared to the aggregate data of all HMDAreporting lenders are not disparate. As illustrated below, CONA’s 2009 performance in the Washington MSA was substantially similar to that of all HMDA-reporting lenders in that MSA. o Of CONA’s 153 conventional home-purchase loans, 7.2% (11) were made to African Americans and 66.7% (102) to whites. In comparison, all HMDA reporting lenders made 5.0% and 57.4% of all loans to African American and white borrowers, respectively. Further, CONA reported race data far more often than all reporting lenders. Only 9.2% of CONA’s loans had no race data, compared to 20.0% for all reporting lenders. o Of CONA’s 129 FHA or VA loans, 19.4% (25) were made to African American borrowers and 57.4% (74) to white borrowers. In comparison, all reporting lenders made 22.0% and 55.3% of all FHA or VA loans to African American borrowers and white borrowers, respectively. Significantly, as the Board has regularly noted, HMDA data provide an insufficient basis by themselves on which to conclude whether a banking organization is excluding any racial or ethnic group because the data provide limited information about the covered loans. The Board has consistently explained that “[t]he data, for example, do not account for the possibility that an institution’s outreach efforts may attract a larger proportion of
marginally qualified applicants than other institutions attract and do not provide a basis for an independent assessment of whether an applicant who was denied credit was, in fact, creditworthy. In addition, credit history problems, excessive debt levels relative to income, and high loan amounts relative to the value of real estate collateral (reasons most frequently cited for a credit denial or higher credit cost) are not available from HMDA data.” 3 Capital One has robust fair lending compliance risk management programs with various measures and safeguards implemented to help ensure compliance with fair lending and other consumer compliance laws and regulations. These actions include: (1) a process for evaluating every new law or regulation for applicability to its mortgage lending operations and for developing plans to ensure ongoing compliance with the law; (2) a separate process for evaluating every marketing segmentation, credit policy and credit model for compliance with fair lending and other consumer protection laws; (3) documented compliance and business processes and procedures to implement and document compliance-related controls; (4) computer-based fair lending training for all lending-related employees and supplemental classroom training for personnel with higher fair lending risks in their job roles; (5) fair lending risk assessments conducted at least bi-annually on each business to assess if there are weaknesses in processes and controls that could potentially result in any fair lending compliance issues; (6) semi-annual fair lending data analysis of mortgage operations; and (7) a fair lending team review of all fair lending complaints within five business days of the receipt of a complaint. FHA Lending. ICP also alleged that Capital One’s FHA lending policies and reported plan to cease FHA lending would harm “protected classes” and, disproportionately, low- to moderate-income (“LMI”) families. ICP’s comment about Capital One’s “FHA lending policies” is vague and unsupported; therefore, we are unable to respond to such comment. We can confirm, however, that ICP’s allegation that Capital One seeks to cease originating FHAguaranteed loans is untrue. Capital One has not had and currently does not have plans to terminate its FHA lending. Capital One would also like to address certain allegations that NCRC made in a press release dated August 1, 2011. In that press release, NCRC indicated that it had filed a complaint with the U.S. Department of Housing and Urban Development, “alleging that Capital One’s Federal Housing Administration (FHA) lending practices violate fair lending laws.” Specifically, NCRC alleged that Capital One’s failure to offer FHA loans to customers with FICO scores below 620 discriminates against minorities. NCRC's allegations are entirely without merit. Mortgage lenders across the country have instituted minimum FICO scores as part of their underwriting criteria. NCRC has asked institutions, including Capital One, to lower the minimum FICO score for FHA-guaranteed loans, in the case of Capital One from 620 to 580, which would qualify as subprime lending. A loan to a borrower with such a lower FICO score is significantly below the accepted definition of a prime loan. Because such subprime loans have a substantially higher risk of default, they put borrowers and taxpayer dollars at risk.
See, e.g., Bank of Montreal (Board order June 20, 2011), available at http://www.federalreserve.gov/newsevents/press/orders/20110621a.htm.
Capital One is committed to responsible mortgage lending across the credit spectrum. To provide broader access to FHA-guaranteed loans, Capital One has already agreed to consider applicants with 580 FICO scores, with appropriate underwriting safeguards to help. these borrowers be successful. In fact, before NCRC submitted its comment letter and issued its press release, Capital One notified NCRC that it would lower its minimum FICO score criteria for FHA-guaranteed loans to 580 by the end of the first quarter of 2012. The secondary market for FHA-guaranteed loans with such lower FICO scores currently is limited to Ginnie Mae securitizations. As a small FHA lender (with less than 1% market share), Capital One has not previously securitized loans through Ginnie Mae and will need time to develop the systems required to meet the standards for selling such securitized FHA loans through Ginnie Mae. To originate FHA-guaranteed loans with FICO scores below 620, Capital One must build both servicing and reporting systems that meet the Ginnie Mae standards. Capital One expects to have such capacity by the end of March 2012. As noted previously, Capital One is fully committed to fair lending practices and offers a range of programs and partnerships intended to facilitate lending and homeownership opportunities for all genuinely qualified buyers. As noted below, Capital One also has provided a large amount of community development loans and investments, totaling $4 billion from 2007 through 2010, much of which has supported affordable housing projects and initiatives. In addition, during the last five years Capital One has provided more than $9 million in grants to support affordable housing, including grants to 103 organizations dedicated to providing home ownership counseling services in underserved communities. Credit Card Lending Compliance. ICP expressed concerns about allegations that Capital One engaged in abusive credit card lending activities. These allegations are entirely without merit. As the Board is aware, Capital One was an early and strong voice in efforts to improve the clarity, transparency and fairness of credit card terms, first through Capital One’s own internal efforts to develop industry-leading customer communications4 and adopt significant, consumer-friendly practices, and later through its support for many of the reform efforts undertaken by the Board through the Regulation AA/Z rewrite, and by Congress through the adoption of the CARD Act. To ensure it maintains these high standards, Capital One’s credit card operations are subject to a robust compliance risk management program similar to the compliance program for its mortgage lending operations, described above. The compliance management program for its credit card operations includes a process by which new or changing laws and regulations are identified and communicated to all relevant personnel and business practices are modified, as needed, for compliance. Additionally, risk management governance structures have been established, which include engagement from business line leaders and risk stewards, including the Compliance and Legal Departments, to review changes to products, processes and services to
Capital One’s voluntary efforts to improve the clarity of its customer communications, which predated both the Board’s efforts to amend Regulations AA and Z, as well as the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (the “CARD Act”), produced many significant achievements. These included the shortest customer agreement among major issuers, which is written at a 7th grade reading level, as recognized by CardHub.com, as well as marketing and account management disclosures that achieved perfect scores for clarity from CreditCards.com.
ensure they are compliant with regulatory requirements and internal standards, as well as consistent with Capital One’s corporate values of “Excellence” and “Do the Right Thing.” This governance model includes evaluation of initiatives to ensure efforts are not unfair, deceptive or abusive to consumers. In addition, approvals must be obtained through this governance structure prior to making material changes to any credit card product or service. Public Benefits of the Acquisition, including to Underserved Communities NCRC indicated that the Notice has not set forth the proposed public benefits of the Acquisition and that it will have no clear benefit to underserved communities. As provided in the Notice, the Acquisition will allow Capital One to offer ING Bank’s customers greater convenience through access to a much broader range of financial products and services, including to products such as fixed-rate mortgages and services such as a large network of ATMs, which ING Bank currently does not offer its customers. Capital One’s substantial brand equity, as well as its formidable marketing capabilities, will also greatly expand the reach of ING Bank’s long-standing, pro-savings message, helping to reach an expanded and diverse range of potential new customers. Moreover, Capital One has a strong record of improving community reinvestment activities, including those serving LMI households and communities, following previous acquisitions. All three of its most recent acquisitions (Hibernia National Bank, North Fork Bank and Chevy Chase Bank, F.S.B.) yielded significantly more CRA activity post-acquisition. Capital One intends to continue to provide high-impact programs and products for LMI populations and neighborhoods throughout its communities. The expansion of CRA activities following acquisitions has been noted by community representatives throughout Capital One’s footprint. As an example, in New York, the Association for Neighborhood and Housing Development (“ANHD”), a 90-member affordable housing advocacy organization, noted in its most recent 2009 report, The State of Bank Reinvestment in NYC: 2009, the following: [S]ince Capital One’s entry into the New York City market in 2006, the bank has been a key partner in not only lending and investing in neighborhoods across the city, but also a prominent supporter of housing policy that benefits working class residents of both rental and owner-occupied housing. It is clear that Capital One’s senior leadership has integrated the bank’s CRA strategy into all of its business lines and aligned its reinvestment goals with its commitment to serve its shareholders. ANHD also applauds the leadership role that Capital One has taken in strategic partnerships including philanthropic collaboratives and affordable housing advocacy coalitions. ANHD believes that the bank’s active involvement in these initiatives represents a model for other institutions looking to provide core community development services. … While many banks have been content to stand on the sidelines in this tight credit market, Capital One has identified lending and investment opportunities that contribute to both the construction and preservation of affordable housing as well as the stabilization and
revitalization of neighborhoods plagued by foreclosures and disinvestment. The State of Bank Reinvestment in NYC: 2009, p. 19.
Below are examples of Capital One’s post-acquisition record (please see the public portions of the Notice for additional information). • Capital One has a dedicated group (“Community Development Finance”) that originates specialized, highly impactful community development loans and investments. None of the three banks acquired by Capital One had a specialized group or focus in this area. The Community Development Finance team grew from a staff of 10 in 2007 to 35 in 2010, and originated more than $2 billion in transactions during that period. Most of these transactions supported quality affordable rental housing for LMI households through loans and investments in low-income housing tax credit (“LIHTC”) properties. Capital One’s Community Development Finance efforts continued to grow during and following the economic crisis, even at a time when the industry was reducing its community development investment activity. For example, while total national LIHTC investments by all investors fell approximately 50% from 2007 to 2008 (according to a report by the Federal Reserve Bank of Philadelphia), Capital One nearly doubled its LIHTC investment originations (from $260 million to $518 million) during the same period. As a result, Capital One financed properties that otherwise would not have received the capital needed for development. Capital One maintained a high level of community development loans and investments throughout the economic crisis and increased such activity following its previous bank acquisitions. From 2007 through 2010, Capital One originated more than $4 billion in community development loans and investments in its communities. This included Community Development Finance’s activity and activity from other lines of business. These community development loans and investments supported (among other purposes) the creation or rehabilitation of more than 25,000 units in affordable housing developments in Capital One's communities. Over 15,000 of these units were financed by Capital One in the eight largest markets that were added to its footprint following its previous acquisitions (New Orleans, Baton Rouge, Dallas, Houston, New York City, Newark, Washington DC, and Bethesda).
The following are examples of how Capital One increased community development lending and investments in local markets after previous acquisitions: ⇒ Before being acquired, Hibernia National Bank originated $246 million in community development loans and investments in New Orleans and Baton Rouge (its largest markets) during the roughly 6-year period from October 1999 to November 15, 2005; the annual average was $41 million. Following the acquisition of Hibernia National Bank, through 2010, Capital One originated a total of $738 million in community development loans and investments in those two markets, for an annual average of $144 million. Thus, the increase in activity following the acquisition was 250% on an annualized basis.
⇒ Following the Hibernia National Bank acquisition, Capital One made more than $1 billion in community development loans and investments to help rebuild the Gulf Coast after the devastation of Hurricane Katrina (this amount includes the $738 million in New Orleans and Baton Rouge mentioned above). Capital One’s leadership role in post-Katrina rebuilding efforts was featured in the Fall 2008 edition of the OCC’s “Community Developments” newsletter. ⇒ Before being acquired, North Fork Bank originated $86 million in community development investments (excluding grants) in its New York and New Jersey markets during the period of August 2002 through November 2006; the annual average was $20 million. Following the acquisition, during the period of December 2006 through 2010, Capital One originated $550 million in community development investments in the same markets for an annual average of $134 million. Thus, the increase in activity following the acquisition was 570% on an annualized basis. ⇒ Before being acquired, Chevy Chase Bank originated a total of $35 million in community development investments (excluding grants) during the period of 2005 through February 2009 for an average of approximately $8.4 million per year. Following the acquisition, during the period of March 2009 through 2010, Capital One originated $165 million in community development investments (an annual average of $90 million), in the greater Washington DC metropolitan area. Thus, the increase in activity following the acquisition was 970% on an annualized basis. Capital One made a very significant impact within a short time after entering this very competitive market. • Capital One increased its economic development activity following its previous bank acquisitions. The three banks acquired had little to no focus on specialized economic development activities. Beginning in 2007 and continuing to today, Capital One has significantly increased its focus on economic development beyond that of the acquired institutions. Capital One hired staff, trained existing staff and implemented an innovative, comprehensive strategy throughout its bank markets. A few examples of these programs include: ⇒ Capital One has provided financial and other support to Community Development Financial. Institutions (“CDFIs”) that lend and provide technical assistance to notyet-bankable micro-businesses and small businesses. o Through its “Second Look” program, Capital One has referred to its CDFI partners more than 1,100 not-yet-bankable small businesses from across its footprint for technical assistance and financing. ⇒ Capital One has established an innovative relationship with Grameen America that involves micro-lending and asset building through savings by the previously unbanked. Specifically, Capital One provided a $1 million loan for re-lending to micro-businesses and to-date have opened 1,200 low-balance savings account for previously unbanked, low-income women entrepreneurs.
⇒ Capital One has created “Getting Down to Business,” an innovative, multidimensional program that provides technical training and one-on-one mentoring to small businesses. The program also includes Individual Development Accounts with matching contributions from Capital One. The program debuted in Houston and has since been expanded to New Orleans and Baton Rouge. • Capital One aggressively expanded branch distributions in LMI areas following its previous bank acquisitions. During the period 2007-2010, Capital One opened 33 branches in LMI areas despite a very challenging economic environment. For example: ⇒ 19 of these branches in LMI areas of Louisiana and Texas were built following the Hibernia acquisition. o 8 of the 19 are in the Houston market. Although Capital One had only a 4% branch market share, the 8 new branches represented 67% of the total LMI de novo branches for all banks in the market during the same period. o While the total number of LMI branches dropped in the New Orleans market for all banks in aggregate, Capital One opened 2 branches in LMI areas. • After previous bank acquisitions, Capital One expanded innovative branching strategies to address the needs of local LMI communities. ⇒ Capital One operates three student-run bank branches in primarily LMI high schools in New York City and Newark. Prior to Capital One’s acquisition, North Fork Bank was in the process of establishing one such branch. Capital One subsequently expanded the program to three student-run branches by adding two more. In addition to growing this program in the New York–New Jersey area, Capital One is expanding the program to the Washington D.C. area, with a new student-run branch opening in Prince Georges County, Maryland in September. These programs give LMI students real-world experience with workforce development and money management. Under the guidance of Capital One associates, the student bankers, who are also Capital One employees, are responsible for managing the branch and providing financial education to their fellow students. Another substantive impact of the program is that the student bankers graduate from high school and many of them (approximately 90%) attend college (Capital One provides college counseling support), whereas a very large portion of their class does not complete high school. ⇒ Three of Capital One’s branches in New York City were established as part of the New York State Banking Development District Program, which encourages banks to establish branches in neighborhoods deemed underserved by the State. One of these branches was established by North Fork Bank. Following the acquisition, Capital One increased its commitment to the program by opening two additional branches. These branches offer reduced fees for certain services and emphasize financial education for customers. In addition, two of these branches are located in LMI areas, and they offer special services to engage nearby public housing residents. Services
include accepting rent payments at the branches, and encouraging residents, many of whom are unbanked, to open deposit accounts. In summary, Capital One has a very strong CRA performance record in connection with all of its previous acquisitions. Capital One operates a comprehensive CRA program featuring highimpact community development activities that have been recognized by its local and national partners. Capital One’s history clearly shows an ongoing consistent and strong commitment to the letter and spirit of CRA as it has grown, and this commitment will continue following consummation of the proposed acquisition of ING Bank.
ING Bank’s CRA Record ICP asserted that “ING Bank is the largest stand-alone internet bank, collecting insured deposits throughout the country while shirking duties to re-lend in low and moderate income neighborhoods under the Community Reinvestment Act.” ICP’s allegations are unsubstantiated and conflict with the institution’s most recent CRA performance evaluation by the OTS. As noted above, ING Bank currently has a CRA performance rating of “Outstanding,” which it received at its most recent evaluation in 2008. The OTS found the following aspects of ING Bank’s CRA program to support its “Outstanding” rating: • Lending Test. Examiners concluded that the levels of ING Bank’s residential mortgage lending, including to LMI borrowers and communities, reflected a good responsiveness to its assessment area’s credit needs. Management of ING Bank established a goal to originate and purchase at least 50 percent of total residential mortgages in its assessment area5 (“Assessment Area”) and other specifically selected MSAs in more than 15 states (“Supplemental Areas”) with the intent of meeting the levels of lending to LMI borrowers and geographies that the aggregate of HMDA reporting lenders achieved in those communities. ING Bank purchased residential mortgage loans, in part, to enhance the distribution of its loan funding to LMI borrowers and geographies and assist ING Bank’s ability to meet its CRA obligations. The percentages of residential mortgage loans that ING Bank originated or purchased which were to LMI borrowers or in LMI communities generally was consistent with or surpassed the percentages achieved by the aggregate of lenders in its Assessment Area or the Supplemental Areas. Investment Test. Examiners found that ING Bank had a significant level of qualified community development investments and grants and that such investments showed a good responsiveness to credit and community economic development needs, particularly the needs of small businesses. Such investments included, among others, (1) a $13 million investment in a loan pool that provided funds to Small Business Investment Corporations (“SBICs”) throughout the United States; and (2) three investments aggregating $6.2 million in a fund that makes investments through a number of SBICs that target women- and minority-owned businesses in urban and rural LMI areas in the Northeast from Maine to Maryland. In addition to these investments, ING Bank made
ING Bank’s assessment area included the Philadelphia-Camden-Wilmington, PA-NJ-DE-MD Metropolitan Statistical Area.
significant charitable contributions for community development purposes including, among others: o Six contributions totaling approximately $1.0 million to three non-profit organizations that provide affordable housing for LMI individuals. o 33 contributions aggregating $2.0 million to nonprofit organizations that provide community services to LMI individuals. o Grants to four organizations for activities that revitalize or stabilize LMI geographies. • Service Test. The evaluation of performance under the Service Test showed that ING Bank was a leader in providing community development services in its Assessment Area. Examiners found that, although ING Bank had no branches, services were readily accessible through the internet, telephone or ATMs.
Therefore, while ICP asserted that ING Bank has not met its CRA obligations, the OTS found substantial favorable evidence to conclude that ING Bank’s CRA performance in its Assessment Area and the Supplemental Areas warranted an “Outstanding” rating. ING Bank has reported that that since its 2008 examination, it has originated $40.8 million in community development loans and $64 million in qualified investments (not including mortgage-backed securities). Systemic Risk of the Acquisition NCRC asserted that the Acquisition will potentially create “large systemic risk.” Under section 604(e) of the Dodd-Frank Act, the Board must consider, as part of the “balancing test” in section 4(j)(2) of the BHC Act, the extent to which the Acquisition would result in risk to the stability of the U.S. banking and financial system.6 As discussed herein and in further detail in the Notice, the Acquisition will not result in greater risks to the stability of the United States banking or financial system and there are ample public benefits, so the balance of the public benefits under the standard of section 4(j)(2) of the BHC Act is consistent with approval. Capital One has worked diligently over time to manage risk and to ensure that its balance sheet is sound and the company remains well capitalized. Throughout the economic downturn, Capital One delivered solid results through conservative balance sheet management and rigorous underwriting standards. Capital One was one of a select group of peer banks to deliver positive operating earnings during each year. Capital One’s prudent management of its business, including avoiding originations of the kinds of exotic mortgage products that were at
Section 4(j)(2) of the BHC Act requires the Board to consider whether the Acquisition “can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, unsound banking practices, or risk to the stability of the United States banking or financial system.” 12 U.S.C. § 1843(j)(2)(A).
the root of the crisis, demonstrates the company’s balanced commitment to both safety and soundness and consumer protection. The proposed acquisition of ING Bank reinforces Capital One’s continued adherence to these principles and further reduces, rather than increases, Capital One’s overall risk profile. In addition, the increased scale of operations that would result from the Acquisition can benefit customers, shareholders, and the economy by providing consumers with improved access to high quality savings and lending products and banking services. Moreover, the combined organization, with just over $300 billion in assets, would remain very much in line with other regional banks in terms of size and simplicity. The combined organization would remain well below the trillion dollar balance sheets of the largest U.S. banks and would not engage in the types of investment banking activities that can generate systemic risk. As discussed in more detail in the public portions of the Notice, in analyzing a similar systemic risk factor in connection with certain nonbanking acquisitions, the Board highlighted three components of systemic risk: (1) whether the proposed transaction would materially increase risks to financial stability due to an increase in the size of the acquirer, (2) whether the proposal would result in a significant decrease in the availability of substitute providers of critical financial services, or (3) whether the proposal would materially increase the extent of the interconnectedness of the financial system. With respect to Capital One’s increase in size, Capital One and ING Bank, respectively, account for only 1.49% and 0.6% of the total assets of all insured depository organizations in the United States. Capital One and ING Bank combined would hold only about 1% of total liabilities of all insured depository organizations in the United States. Using deposits as a proxy, Capital One and ING Bank combined would hold only 1.52% of the total deposits of nationwide deposits. In addition, ING Bank offers simple retail banking products and does not provide any specialized or critical financial products that are available from only a small number of providers. With respect to deposit accounts, mortgage products and brokerage services that ING Bank offers, there are numerous providers of such products and services. By any measure the proposal would have no material impact on the availability of any of these retail banking products and services. Moreover, ING Bank is not engaged in activities that raise concern about increased risk through the interconnectedness of a banking organization with other financial firms, such as through cross-border activity, reliance on short-term or wholesale funding sources for its operations or use of complex derivative transactions. ING Bank will not have crossborder activity after it separates from its Dutch parent, ING Bank is not and will not be dependent on short-term or wholesale funding sources and ING Bank is not and will not be engaged in trading derivatives, writing credit default swaps or issuing financial guarantees to other financial institutions. Therefore, the Acquisition would not present any of the concerns with interconnectedness that the Board has previously noted in evaluating the extent of systemic risk.
For all these reasons, Capital One believes that the Acquisition will not increase systemic risk to the United States banking or financial system. Comment Period Extension Request Notice of the proposal was published in the Federal Register on July 22, 2011, with a comment period until August 18, 2011. In addition, newspaper notice was published on July 20, 2011, in the appropriate newspapers of record, with a comment period that will end on August 22, 2011. Accordingly, interested persons will have had 33 days to comment on the Notice, which is consistent with the Board’s Regulation Y. This period provides sufficient time for interested parties to prepare and submit their comments. The Commenters have not provided good cause or any clear demonstration of hardship or any other meritorious reason for seeking an extension of the comment period, as required by the Board’s regulations.7 Moreover, as noted above, the Commenters have already provided written submissions and they still have an opportunity, before the comment period expires on August 22, to submit additional timely comments for the Board’s consideration in acting on the proposal. The Commenters therefore have not provided any justifiable basis for an extension of the comment period. Accordingly, Capital One respectfully submits that the request for an extension of the comment period not be granted. Public Hearing Request The Commenters also have requested that the Board hold a public hearing on the Notice. The Board’s regulations provide for a hearing under section 4 of the BHC Act if there are disputed issues of material fact that cannot be resolved in some other manner.8 Under its regulations, the Board also may, in its discretion, hold a hearing or a public meeting on an application to acquire a bank or savings association if necessary or appropriate to clarify factual issues related to the application and to provide an opportunity for testimony.9 The Board has repeatedly explained that a public hearing or public meeting is unwarranted when, as in this case, the requester has had the opportunity to submit comments, the requester has failed to identify any genuine dispute about facts that would be material to the Board’s decision, and the public hearing or meeting is not otherwise needed to clarify the factual record.10 As noted above, the Commenters and other interested parties will have had ample opportunity to submit their views in writing by the close of the comment period and, in fact, the Commenters already have submitted written comments that the Board will consider in acting on the Notice. Moreover, the Commenters have not: identified questions of fact that are in dispute and material to the Board’s decision on the Notice, demonstrated why a hearing or public meeting would be necessary to elicit material information that could not be provided in written comments, or otherwise demonstrated why submission of written comments is otherwise insufficient to provide material information for the record of the Notice. In addition, the Board will have ample opportunity to
See 12 C.F.R. § 262.25(b)(2). See 12 C.F.R. § 225.25(a)(2). 9 See id.; 12 C.F.R. §§ 262.3(e) and 262.25(d). 10 See, e.g., Bank of Montreal (Board order June 20, 2011), available at http://www.federalreserve.gov/newsevents/press/orders/20110621a.htm.
complete the record of the Notice without any need of a public hearing or public meeting. Accordingly, Capital One respectfully submits that the request for a public hearing should not be granted. Conclusion Capital One believes that the Notice together with this submission addresses the matters raised by the Commenters. Capital One’s strong financial and managerial resources and demonstrated CRA performance record, as well as the strong public benefits of the Acquisition in providing ING Bank’s customers with a much broader access to quality products and services, as well as providing other consumers with broader exposure to ING Bank’s products, will strongly outweigh any adverse effects of the proposal and support approval of the Notice. An extension of the comment period is not warranted because interested parties will have had ample opportunity to present their views on the Notice by the close of the comment period. A public hearing is not warranted because there are no issues of fact in dispute that are material to the Board’s decision on the Notice and a public hearing is not necessary for the Board to complete the record and evaluate the proposal under the statutory factors it must consider in acting on the Notice.