5 Days of Unanswered Questions about Too Big to Fail Bank Merger with OneWest and CIT Group

Bank Merger Would Benefit Investors, But What About Communities?San Francisco October 13, 2014: A nonprofit, bank advocacy coalition announced a new campaign today to increase the public’s awareness of a proposed bank merger that would create a nearly $70 billion, Systemically Important Financial Institution (SIFI), AKA a Too Big To Fail bank, in Southern California. A SIFI is a financial institution that is so large, over $50 billion in assets, that its failure could trigger another financial crisis. In this newest proposed bank merger, banking regulators are being asked to approve the union of two banks with troubled histories, OneWest Bank and CIT Group, to form the country’s newest Too Big To Fail bank.

CIT Group, headquartered in New Jersey, is proposing to buy OneWest Bank, headquartered in Pasadena,California. The two banks both have a checkered past. CIT Group took $2.3 billion in TARP funds just a few months before it declared bankruptcy, which meant CIT Group never repaid the $2.3 billion it received from theUS Government. OneWest was formed from the ashes of one of the largest bank failures in history, Indymac Bank. Indymac was seized by the FDIC after depositers made a run on the bank in 2009. The FDIC later soldIndyMac at a discount to a group of investors: IMB Holdings Inc. These investors now stand to double their money, and community groups want to know if the regulators are going to ensure there is public benefit and not just investor gain as a result of the merger.

The first of several deadlines for public input to regulators was last Friday, and the California Reinvestment Coalition (CRC) and 25 community organizations sent letters to the New York Federal Reserve Bank, opposing the merger and asking regulators to hold hearings in Los Angeles. CRC’s detailed letter to the Federal Reserve Bank of New York includes a preliminary analysis of the merger and a long list of concerns and unanswered questions about the proposed merger.

Kevin Stein, associate director of CRC, explains: “A recent tape recording of bank regulators coddling the banks they’re supposed to regulate has reduced the public’s confidence that regulators are watching the store. This merger of two banks who required massive government bailouts adds to those concerns because it is an example of investors profiting while communities are left holding the bag. We are urging the bank regulators to conduct their due diligence on this merger which will create a $70 billion institution, and hold hearings in Los Angeles.If there’s not a clear community and public benefit, and instead only a continuing subsidy of the largest institutions and investors, the merger shouldn’t happen.”

As part of the public awareness campaign, the California Reinvestment Coalition will shine a light on five troubling themes about the merger (a new theme each day) as part of a broad public awareness campaign.

On Day One, CRC members are asking regulators: “What (if any) are the public benefits in allowing the creation of another Too Big To Fail Bank?”

CRC is urging regulators to answer the following questions about the public benefit (or lack thereof) of the merger.

• In a merger of this kind, regulators are required to assess the benefits of the merger against the risks created by it. Given the troubled history of the two banks, including the damage caused to communities through the tens of thousands of foreclosures by OneWest bank, and the unpaid $2.3 billion given to CIT Group through TARP, are regulators going to ensure that the newly merged bank has a community benefit and reinvestment plan in place that is commensurate to its new size? How will regulators weigh the risks to the financial system by the creation of a new SIFI bank, especially since taxpayers and communities have already paid for previous risks created by these two institutions?

• Will regulators ask the leadership at the banks why it has set CRA goals in community development and investments that it appears the banks may have already met? Isn’t that bar too low for a bank this large?

• Only fifteen percent of OneWest bank branches are in low and moderate-income census tracts. Based on this measure and others, CRC members believe OneWest Bank is already failing to meet the needs of low and moderate income Californians. How would this new bank merger change that? Should low and moderate income Californians expect to see any benefit from this merger? Why should low income communities accept OneWest’s promise to serve them through mobile banking instead of brick and mortar branches when other communities get both?

• The majority of “small business” loans currently made by OneWest bank are to businesses with over $1 million in revenue. Small businesses create local jobs, strengthen local communities, and are an asset building tool for families. As part of the merger, will the regulators ensure that the bank has a plan to increase its focus on small business lending to smaller businesses (those with less than $1 million in revenue annually)?

• Why have the banks not established clear goals for contracting with Minority, Women, and Disadvantaged Business Enterprises vendors? Does the leadership value contracting with these businesses? If so, why aren’t there any clear benchmarks in the bank’s CRA plan?

Tomorrow’s questions for regulators will focus on the loss-share agreements the FDIC gave to the purchasers of IndyMac bank, the fact that the banks are now asking the FDIC to transfer the agreements to CIT Group, and how much money the FDIC has paid out under these loss-share agreements.

For a copy of CRC’s letter to the Federal Reserve Bank of New York, click here: CRC letter to FRBNY