Fed Governor questions Fed’s role in reviewing mergers of larger banks

Daniel TarulloA Federal Reserve governor recently questioned the economic benefits of large banks and financial institutions and has said that Dodd-Frank does not go far enough in instructing the Fed to review mergers.

Fed Governor Daniel Tarullo said there is a lack of evidence to suggest that big financial firms produce “economies of scale” beyond processing debit and credit card purchases, reports.

At the same time, larger financial institutions are fighting against global reforms, especially new capital surcharges, which make it costly for them to operate.

The Fed is preparing for its final decision on whether to approve Capital One Financial Corp’s proposed $9 billion acquisition of ING Groep NV’s online bank ING Direct, according to

Consumer groups and many members of Congress have instructed the Fed to take into account the systemic risk of approving the deal.

Tarullo said that a section of Dodd-Frank requires the Fed to consider the systemic risk implications of any mergers between financial firms but noted that the law does not instruct the Fed to reject a deal simply because it would pose a greater risk to financial stability.

"Instead, it appears we have been instructed to add any increased systemic risk to the list of adverse effects that could result from the merger and then determine whether the benefits to the public of the acquisition outweigh these adverse effects," Tarullo said, reports.

Capital One maintains that its merger poses no systemic risk and has said that it would still be far smaller than the largest U.S. banks.

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