Capital One Bank by Can Pac Swire is licensed under CC BY-NC 2.0 DEED

On July 5, 2024, American Banker’s opinion column, BankThink, published an op-ed written by ATR’s director of financial policy, Bryan Bashur. The op-ed talks about how Capital One’s acquisition of Discover is good for Americans. The piece also explains why arguments against the merger are unfounded. 

The op-ed discusses payment flexibility:

Consumers will have more options if the acquisition is approved. Visa is offering a new product that allows flexibility in choosing between debit, credit and installment loans without needing separate cards. Capital One can choose different payment rails in addition to using Discover for debit card transactions. More payment options are good for consumers and merchants. According to one article, “the card industry is not so concentrated that the acquisition would result in a lack of consumer or merchant options.” All else equal, providing different payment network options creates competition and lowers costs for merchants without having to pass restrictive and unnecessary legislation such as the Credit Card Competition Act.

The article also talks about how deposit rates are likely to increase:

Deposit rates do not necessarily decrease after every bank merger. One paper found that deposit and loan rates converge to the acquiring bank’s rates. Capital One and Discover offer 12-month certificates of deposit with annual percentage yields of 5% and 4.7%, respectively. Based on the paper’s findings of “uniform pricing,” Discover would adopt the acquiring bank’s rate — in this case Capital One. Consumers will see certain deposit rates increase.

The op-ed points out how activists have been weaponizing the Community Reinvestment Act for their own gain:

Opponents of the merger have wrongly criticized how it will affect credit access for low- and moderate-income communities. Capital One most recently received a Community Reinvestment Act, or CRA, rating of “outstanding” and Discover received a rating of “satisfactory.” There is no tangible evidence to suggest their ratings would worsen after the acquisition is finalized.

The piece also talks about how the Basel III Endgame capital requirements more likely to cause instability, not the merger itself:

The combined Capital One and Discover entity will likely continue to be regulated as a Category III bank. Three out of four bank mergers that remained Category III banks were approved by regulators. Since Capital One has experience with the regulatory and capital requirements for a Category III bank, financial stability concerns should not be an issue. Ironically, federal regulators’ proposed implementation of Basel III endgame capital requirements is the real threat to stability. As drafted, the proposed capital requirements would significantly burden Category III banks by applying stricter capital standards for deferred tax assets, which includes Capital One’s and Discover’s rewards programs, and mortgage servicing assets.

To read the full op-ed, click here