Fed is Belatedly Concerned with Loan that Jumped the Gun, But Allows It: Profiles in Lassitude

Fed is Belatedly Concerned with Loan that Jumped the Gun, But Allows It: Profiles in Lassitude

by Matthew R. Lee

The Fed is belatedly concerned -- but not too concerned. Following Inner City Press / Fair Finance Watch's comments, the Fed conducted an after the fact inquiry and in an approval order last week included this footnote:

A comment from the public expressed concern that FNF Group acquired control over Harleysville before obtaining Board approval of the application because of an
extension of credit FNF Group made to Harleysville. In December 2009, and after
FNF Group filed its application with the Board to acquire Harleysville, FNF
Group loaned Harleysville $50 million, secured by the shares of Harleysville
Bank. Harleysville invested the loan proceeds in Harleysville Bank to increase
the bank's capital.
The Board is concerned when a banking organization
seeking to acquire . another banking organization makes a loan to the acquiree
in advance of the Board's approval of the acquisition. Those types of loanss
raise concern thatthe transactionon would ~e, in substance, the acquisitioof af
a controlling interest or would provide the acquirer with the ability to
exercise a controlling influence over the management and policiof thethe bank
holding company before receiving Board approval. The Board has reviewed
carefully the loan to Harleysville, including the circumstances and terms of the
loan, the merger agreements, the purpose of the loan, and the relationships of
the organizations after the loan transaction. Based on all the facts of recordd,
the Board does not believe that the loan resulted in FNF Group acquiring voting
securities of, or a controlling equity interest in, Harleysville, or in FNF
Group exercising, or having the ability to exercise, a controlling influence
'over Harleysville in this case. The Board continues to believe that loans made
by an acquirer to a target organization before agency approval of its
acquisition proposal raise important issues, and it will review these
arrangements critically and carefully.

But the Fed apparently didn't know about the loan until it was raised in comments, and it let the deal go forward, after reams of arguments by banking insider H. Rodgin Cohen. This is another example of Fed lassitude, another reason that consumer protection should not be put under the Fed....