Recently I received a letter in the mail offering me a Capital One credit Card account. Capital One is the banking institution that (1) runs TV commercials with funny “barbarians” in them asking “What’s in your wallet, (2) is one of the major banls that dominates the consumer and small business credit card market and (3) is the 4th largest customer of the US Postal Service. Capital One is currently seeking approval from the Federal Government of two acquisitions to expand it’s business. One is a proposed $9 BILLION acquisition of ING’s American subsidiary, ING Direct USA that would provide Capital One with $80 BILLION in deposits. The other is a proposed $2.6 BILLION acquisition of HSBC’s credit card operations unit valued at $30 BILLION in loan assets.
On the whole, Capital One has not been as bad an actor as Goldman Sachs, Bank of America, or JP Morgan. However, our current economic crisis is due in large part to the consolidation of the financial industry into fewer and fewer large financial corporations. Approval of Capital One’s ING and HSBC acquisitions would signal that once again, it’s business as usual in Washington for the financial industry, despite the fact that Republicans and others swore up and down at the time the Dodd-Frank reforms were being debated that the proposed reforms did not go far enough to eliminate the threat to economic stability posed by the “Too Big to Fail” Doctrine.
Now that Capital One is seeking approval from the Federal Reserve to move ahead with its proposed acquisitions, Steven Pearlstein, columnist of the Washington Post, had this to say about the current climate in Washington regarding further consolidation of our financial industry:
The Capital One-ING review also comes as a new council of financial regulators considers whether to designate large insurers, asset managers and finance companies as “systemically important,” subjecting them to closer scrutiny and higher capital standards. The indications are that, other than possibly AIG, none will be designated.
Recall that when Republicans united to oppose Dodd-Frank, they justified it on the basis of their deep concern that not enough was done to deal with the banks that were “too big to fail.” How strange, then, that not a single Republican has questioned the Capital One … deals. Instead, that role has fallen to Democrat Barney Frank, who is intent on seeing that the law that bears his name is actually enforced.
Capital One is an efficient and profitable machine that sucks up deposits from a vast network of ATMs and bank branches, then lends them at an interest rate spread of 7 percentage points to consumers and credit-card holders using highly sophisticated computerized underwriting. That machine will only become more efficient with the purchase of ING, with its $80 billion in deposits, particularly after Capital One completes its acquisition of the $30 billion U.S. credit card portfolio of London-based HSBC. [..]
What … concern[s] me … is that even more of the nation’s bank deposits will be channeled to small businesses through corporate credit cards rather than through loans made by flesh-and-blood bankers. Why is that important? Simply put, because only bankers with deep understanding of industries, communities and customers can be relied on not to push cheap and easy loans during credit booms and then abruptly cut off credit lines or raise rates at the first sign of economic trouble.
I agree with Pearlstein that further consolidation of financial power into these large monolithic banks is not a good idea. It undermines our nation’s financial stability and hurts small businesses and local and community banks. These smaller banks employ a lot of people who will lose their jobs if Capital One succeeds in putting these local banks out of business. For that reason I sent Capital One a letter in its pre-addressed, pre-paid envelope (along with all the material they sent me lauding their credit card and their rewards program), which read as follows:
To whomever reads this letter at Capital One:
I understand that you personally are not likely to be responsible for the policies of your financial institution.
I understand that you are not likely to be part of your company’s senior management.
I understand you likely don’t make the decisions that often adversely affect the lives of your company’s customers.
That said, please understand that I see any large financial institution in this country as a threat, and a highly dangerous one at that, to the welfare of the people of the United States.
The increasing concentration of money, deposits and other financial assets into that hands of fewer and fewer financial institutions through mergers and consolidations (such as the ones planned by your company to acquire HSBC and ING Direct USA), combined with the lack of adequate regulation and oversight over the activities of these large financial conglomerates (such as your company), and the enormous political influence these large institutions wield over our nation’s political process and economic policies, is a continuing threat to the economic stability of America and the world.
The views I am expressing in this letter are not mine alone. Many economists view the current financial crisis as the result of the deregulation of financial companies and the increasing consolidation of financial services and transactions into the hands of a few extremely large financial companies, one of which is Capital One. These large financial institutions exert an outsized influence on the markets and their risky decisions have ruined, and continue to pose a risk to, the economies of entire countries, as well as to millions of small businesses and individuals.
Consolidation increases systemic risks in the financial industry making further global economic crises and downturns more, not less, likely.
The consolidation of banks and other financial institutions has played a major role in the greatest wealth and income inequality our nation has seen since the days of the Great Depression.
To be blunt, I see your company and other large financial firms as the single largest cause of our financial crisis and our economy’s inability to recover from that crisis. The financial industry’s current business model of “bigger is better” is the reason unemployment is so high, and small business cannot find adequate credit to expand their businesses and increase jobs.
While major financial institutions are reporting ever higher profits, millions of Americans are suffering from record unemployment, lack of job creation, loss of health insurance and loss of their homes through shady and possibly illegal foreclosure practices. Your own firm has benefited enormously over the best few years while most Americans are struggling to make ends meet.
While your company may not be the worst offender among the “Big Banks” the larger Capital One becomes through planned acquisitions, the more it poses a threat to the American and world economy should it fail.
For all of the foregoing reasons, I must reject your offer of a Capital One credit card, no matter what benefits you claim it might provide to me in the short term.
I hope you understand that this decision is based on is nothing personal against Capital One or its affiliates and subsidiaries. It’s strictly business.
Sincerely,
Steven ______________
Feel free to use all or any part of this letter in your own correspondence with the Big Banks who want your money and business.