“Too big to fail” faces test in merger review

The Federal Reserve will hold its first hearing on Capital One Financial Corp.'s purchase of ING Groep's online banking unit on Tuesday, causing consumer advocacy groups to issue warnings against "too big to fail."

Many observers consider this deal to be a test case for how the Fed will handle large bank mergers after the recent financial crisis, according to Reuters. Last year's Dodd-Frank financial overhaul instructed the Fed to closely scrutinize such mergers.

Capital One's deal will give it an additional $320 billion in assets and place it seventh on the scale of the largest U.S banks.

"It is one thing for a $20 billion bank to fail," John Taylor of the National Community Reinvestment Coalition said, Reuters reports. "We'll feel a ripple, there will be hand-wringing. When a $300 billion bank fails, that is a threat to our system."

During the financial crisis, Capital One received a federal bailout of $3.5 billion while ING used about 10 billion euros from the Dutch government.

According to Taylor, neither bank should be trusted to grow larger.

Some industry experts will testify in support of the merger during Tuesday's hearing.

According to Karen Petrou, managing partner of Federal Financial Analytics, the merger would produce benefits by making the credit card focused Capital One less risky by diversifying it and giving it more access to capital, Reuters reports.

Petrou also said that the Dutch government instructed ING to sell its U.S portfolio.

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