Posted on February 21, 2012

NCRP Calls on Federal Bank Regulators to Evaluate Philanthropic Claims by Merging Banks

The National Committee for Responsive Philanthropy has called on federal bank regulators to establish concrete standards for evaluating claims made by banks about their philanthropy when seeking approval for proposed mergers.

For a bank to obtain approval of a proposed merger from federal regulators under the Dodd-Frank Act, it must demonstrate that the transaction will create "public benefit" that outweighs "systemic risk." Most often, applicants attempt to do so by promising that the newly merged bank will be better able than the pre-merged banks to serve customers, create jobs, meet Community Reinvestment Act goals, and engage in philanthropy.

Last fall, NCRP officials testifying before the Federal Reserve Board of Governors questioned the ability of Capital One to give $450 million to charitable causes over ten years if its proposed merger with ING Direct were approved. After assessing Capital One's philanthropic track record, NCRP concluded that the bank's giving was much lower than that of other large banks.

In a white paper released last week, Assessing the Philanthropic Component of a Proposed Bank Merger's Public Benefit (6 pages, PDF), NCRP provided federal bank regulators with tools needed to assess such claims and defined detailed standards of excellence with respect to the transparency, quantity, and effectiveness of a bank's philanthropy. According to NCRP, there were no objective criteria for regulators to assess the philanthropic claims of consolidating banks until its tools were made available.

"As the country has painfully learned in recent years, bigger banks are not necessarily better banks for customers and investors," said NCRP executive director Aaron Dorfman. "While we applaud legitimate philanthropy by banks and their foundations and hope to see more of it, a bank should not be allowed to make exaggerated claims about its past philanthropy and hazy promises about future largesse to obtain approval of a proposed merger."