Can We Have Bank and Regulator Hearings in California Too?

California Reinvestment Coalition and Fair Housing Council of San Fernando Valley

This morning, the Senate Committee on Banking, Housing, & Urban Affairs will hold a hearing: “Improving Financial Institution Supervision: Examining and Addressing Regulatory Capture“ to focus on recent, embarrassing revelations (stories here , here, here and here) about the New York Federal Reserve. Senators are concerned that this important bank regulator is not actually fulfilling its supervisory role, and instead has become deferential to the mega-banks it supervises, including Goldman Sachs, JP Morgan Chase, and others.

While this hearing is taking place in Washington, DC, these issues also impact consumers and communities here in California. For example, consider the proposed merger of OneWest Bank, headquartered in Pasadena, with CIT Group, headquartered in New Jersey. If approved by bank regulators, this would be the first time a Systemically Important Financial Institution (SIFI) was created through a merger. The SIFI designation is given to banks that are so large that their collapse could trigger problems throughout the entire financial system. In addition to the risks created by adding another Too Big To Fail bank, ongoing foreclosures, including foreclosures on seniors and their surviving spouses with reverse mortgages by the Bank’s Financial Freedom subsidiary are still harming California communities.

Currently over 50 California organizations, including the California Reinvestment Coalition, are opposing this merger and calling on the Federal Reserve to hold hearings in Los Angeles about the merger. While we appreciate the oversight being conducted in Washington DC, we also want bank regulators to hold their own hearings here in California. Before regulators make any decisions about this merger, we believe California communities should have a public forum to discuss the potential impacts and risks. Community input is especially important given the damage already caused by IndyMac’s predatory loans and the thousands of foreclosures subsequently conducted by OneWest in California.

We are still waiting to hear whether or not the Federal Reserve will hold public hearings on this merger, until then, we have four suggested topics for today’s hearing that we think Senators should ask New York Federal Reserve Bank President William C. Dudley, who is testifying at the hearing:

1. In assessing the merger of CIT Group and OneWest Bank, what consideration has the Federal Reserve given to the troubled histories of the two banks and their negative impacts on communities, government agencies, and taxpayers? IndyMac’s failure cost the FDIC’s Insurance Fund over $10 billion. Meanwhile, CIT Group used bankruptcy to eliminate its obligation to repay $2.3 billion in TARP funds it received from the US Treasury Department, courtesy of the U.S. taxpayer. Since then, OneWest and Financial Freedom have foreclosed on thousands of homeowners, seniors, and their heirs.
2. Since this is the first time a merger will result in the creation of a Systemically Important Financial Institution, if the Federal Reserve approves this merger, would the approval be contingent on the new bank developing safeguards to protect communities in case it were to fail?
3. Does the Federal Reserve have any concerns about the fact that this merger depends on the FDIC continuing to subsidize this new, Too Big To Fail bank via the Shared Loss Agreement it extended to OneWest’s billionaire owners in 2009? This agreement appears to only enrich billionaire investors and millionaire bank officers, while serving no public interest. Both OneWest and the FDIC have declined to publicly state how much money has been paid out under the agreement, how much more could still be paid out, and on what basis the FDIC will decide whether to transfer the agreement to CIT Group. Has the FDIC shared this information with the Federal Reserve?
4. Has the Federal Reserve made any conclusions about the Public Benefit or lack thereof with this proposed merger? CRC’s analysis of this merger finds very little, if any public benefit to this merger. The bank’s Community Reinvestment Plan is near the bottom of the pack as compared to its peers and as compared to banks that are smaller in size. The Bank appears to cater to the wealthy, and with only two OneWest branches located in low-income census tracts, the bank has suggested that low income consumers should use online banking instead. Does the Federal Reserve share OneWest’s view that poorer Californians don’t need to have banks in their neighborhood?
5. Approximately half of the proposed bank’s deposits will come from internet based deposits from customers who live throughout the US. However, the bank proposes to only reinvest those deposits back into Salt Lake City. Does the Federal Reserve agree that banks don’t need to reinvest dollars back into communities from which the deposits originate?

If you are a California consumer and you’re worried about bank regulators approving the creation of another Too Big To Fail bank, please consider emailing the Federal Reserve and the Office of the Comptroller of the Currency. If you’ve had experiences with IndyMac Bank, OneWest Bank, Freedom Financial, or CIT Group, that is also worth noting. And, if you support CRC’s suggestions that regulators hold hearings, you should also note that. Contact info (Please email both regulators): [email protected] and [email protected]

Kevin Stein is the Associate Director of the California Reinvestment Coalition. The California Reinvestment Coalition advocates for the right of low-income communities and communities of color to have fair and equal access to banking and other financial services. CRC has a membership of more than 300 nonprofit organizations and public agencies across the State. Sharon Kinlaw is the Executive Director of the Fair Housing Council of San Fernando Valley.