California Reinvestment Coalition Urges Greater Transparency by Regulators in Merger Creating Too Big to Fail Bank
San Francisco, CA October 03, 2014- In light of the recent, disturbing This American Life episode (The Secret Recordings of Carmen Segarra) that suggests bank regulators are rubber-stamping bank deals, the California Reinvestment Coalition (CRC), a coalition of community organizations located throughout California, is calling for federal regulators to do their job in reviewing a proposal by CIT Group to purchase OneWest Bank. The proposed deal would create the newest Too Big To Fail Bank, with nearly $70 billion in assets, forcing regulators to consider it a “Systemically Important Financial Institution,” or SIFI, the designation given financial institutions that are above $50 Billion in assets and whose possible failure could create another financial crisis.
Given the recent concerns about bank regulators deferring to the banks they are supposed to be supervising, the size of this mega- merger, and concerns that private gains may be prioritized over public benefit from the merger, CRC is calling for:
-Increased Transparency of Investor Gains Through FDIC’s Loss Share Agreement: CRC is filing a Freedom of Information Act (FOIA) request with the FDIC so the public can see how much money has been paid to OneWest under the Shared Loss Agreement and what conversations CIT has had with theFDIC about the possibility of obtaining the lucrative agreement as part of the merger with OneWest.
-Independent Audit of OneWest’s Loan Modification Policies: CRC is calling on bank regulators to conduct an independent audit of OneWest’s loan modification program to test compliance with Home Affordable Modification Program (HAMP) policies and other loss mitigation programs meant to keep homeowners from losing their homes, including reverse mortgages serviced by a OneWest subsidiary,Freedom Financial. Data from ForeclosureRadar.com suggests OneWest has foreclosed on approximately35,000 homes in California.
-A public analysis by banking regulators of the community benefits of the merger (or lack thereof) as compared to the money that private investors may have already received under the loss-share agreement and the pay-out to wealthy investors if the merger is approved. CIT Group obtained $2.3 billion in TARP funds in 2008. Soon thereafter, CIT filed one of the biggest Chapter 11 bankruptcies in history, and never repaid the $2.3 billion to the U.S. taxpayers.
Paulina Gonzalez, executive director of the California Reinvestment Coalition explains the importance of transparency and accountability to the public in the merger process: “Although the Loss Share Agreement may have been appropriate during the time of the financial crisis after IndyMac failed, the transfer of the Shared Loss Agreement to CIT Group as part of this proposed merger serves no public purpose or government interest, and only enriches investors. Shared loss agreements are meant to protect our entire financial system, not to facilitate the enrichment of a few private investors who stand to gain immensely from this merger, while communities are left behind.”
“We don’t need another bank that is too big to fail,” said Michael Banner, Chief Executive Officer, of Los Angeles LDC. “We need to make sure that OUR communities don’t fail, by putting protections in place that insure improved access to capital to Main Street businesses and economic development projects that create much needed jobs and revitalize those communities that were hardest hit by the Wall Street induced financial crisis.”
The banks require regulatory approval and consent for the merger from the Federal Reserve Board of New York,the Office of the Comptroller of the Currency, Fannie Mae, and the FDIC. The Federal Reserve is accepting comments on the proposed merger until October 10, 2014.
California Reinvestment Coalition’s FOIA request can be seen here
A letter sent by 45 community organizations to CIT Group and OneWest leadership can be seen here
A petition by the California Reinvestment Coalition to the regulators can be seen here.
A copy of the FDIC’s loss-share agreement with OneWest investors is available here
An Op-Ed by the executive directors of the California Reinvestment Coalition and the Greenlining Institute,entitled “Shouldn’t communities be considered ‘too big to fail’?” can be seen here.