Bank Mergers and Charitable Giving: A Framework for Evaluation

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February 16, 2012; Source: National Committee for Responsive Philanthropy | A new report from the National Committee for Responsive Philanthropy (NCRP) provides guidelines for regulators evaluating a bank’s claim that a proposed merger with another financial institution will strengthen its philanthropic giving. In keeping with NCRP’s mission of promoting “philanthropy that serves the public good,” the report, “Assessing the Philanthropic Component of a Proposed Bank Merger’s Public Benefit,” provides both qualitative and quantitative guidelines to assist regulators with the process of using a bank’s past record of giving to gauge the likelihood that it will make good on its promises for the future.

The three criteria that NCRP recommends in assessing a bank’s “post-merger public benefit” in charitable giving are transparency and verifiability, quantity, and quality. Because a bank’s charitable gifts from a separate 501(c)(3) foundation can be verified independently (via 990s and other sources) whereas gifts from a bank’s corporate base are comparatively more difficult to track, the report recommends that a bank’s foundation giving be the standard for evaluation. The report also suggests that only institutional giving (as opposed to employee donations) be considered part of an institution’s philanthropy, and that the total amount of cash giving “is the amount that matters most.” Using data from a 2005-2009 study by the Committee Encouraging Corporate Philanthropy, the report cites the median “total giving as a percentage of total revenue” at .16 percent for corporate entities and recommends that regulators use this figure as a minimum baseline. As qualitative guidelines, NCRP includes its own criteria for organized philanthropy, which calls on grant makers to provide: at least 50 percent of grant dollars to benefit lower-income communities, communities of color and other underserved groups; at least 25 percent of grant dollars for advocacy, organizing or civic engagement; and at least 50 percent of grant dollars for general operating support (with at least 50 percent as multi-year gifts).

The report comes at a time of heightened concern about the operating practices of large, national banks—and on the heels of Federal Reserve Governor Daniel K. Tarullo’s recently remarks reminding regulators to rethink the balance of “public benefit” and “systemic risk.” As background, NCRP notes that bank representatives applying for mergers with other financial institutions frequently emphasize “that the newly merged bank would be better able than the pre-merged banks to serve customers, create jobs, meet Community Reinvestment Act (CRA) goals and engage in philanthropy.” Because such claims are not legally binding, however, NCRP was inspired to provide the financial field with this framework for evaluation.

Last October, NCRP provided testimony to the Federal Reserve Board regarding concerns about Capital One’s acquisition of ING Direct and the former’s claims to commit $450 million to charitable causes. That merger was officially approved last week, and thanks to NCRP, we’ll now have a better way to follow and understand the charitable giving that results. –Anne Eigeman