ING DIRECT's Merger into Capital One Will Cause FDIC Coverage Changes

ING DIRECT has sent emails to customers who have accounts at both ING DIRECT and Capital One. The emails are intended to notify customers of upcoming changes to FDIC coverage. There appears to be two versions of this email depending on which Capital One Bank holds your money. Both emails have the following excerpt which explains the changes:

Last February, ING DIRECT became a part of the Capital One family, but there's still some official stuff we have to tidy up, like consolidating our legal structure. What's that mean in real life? It just means that on November 1, 2012 (subject to regulators giving us the final go-ahead), ING Bank, fsb (that's ING DIRECT's official name) and Capital One, N.A., will legally become one bank—and unless you hear from us, assume they gave us two thumbs up. It also means that the FDIC coverage on your deposit accounts will stay as is until 6 months following that date (or May 1, 2013). Then, your FDIC coverage will be based on your total combined deposits at Capital One, N.A., and ING DIRECT up to the FDIC max of $250,000 per depositor - or $500,000 for joint depositors. If you opened CDs with ING Bank, fsb, and Capital One, N.A. , before November 1, 2012, they'll stay separately insured until the 1st maturity date after May 1, 2013. Keep in mind, these coverage extensions won't apply to deposits made after November 1, 2012.

One thing that's confusing is that there are two types of mergers. The first one occurred when the Capital One bank holding company (Capital One Financial Corp.) officially acquired ING DIRECT on February 17. After this merger, Capital One Financial had three bank subsidiaries:

• Capital One, N.A., FDIC Cert. # 4297 (mostly held deposits from branches)
• Capital One Bank (USA), N.A., FDIC Cert. # 33954 (mostly held online deposits)
• ING Bank, fsb, FDIC Cert. # 35489 (official name of ING DIRECT)

The February merger had no effect on FDIC coverage since ING DIRECT's FDIC status remained unchanged.

In November, another merger is planned which will merge ING DIRECT into Capital One, N.A. After November, Capital One Financial will once again have two bank subsidiaries: Capital One, N.A. and Capital One Bank (USA), N.A. ING DIRECT will no longer be a separate FDIC-insured entity. This merger will affect FDIC coverage.

ING DIRECT provided the following timeline explaining these mergers. This is from ING DIRECT's website:

So if you have deposits at both ING DIRECT and Capital One, N.A., you may lose FDIC coverage on deposits if you have over $250,000. If you had opened accounts at a Capital One branch, it's likely that your deposits are being held at Capital One, N.A. That's the case for me. The email that I received from ING DIRECT informed me of this with the following charts:

If you have deposits at Capital One Direct which are likely held at Capital One Bank (USA), N.A., this November merger may have no effect on you. In that case, the email sent to you was different. Jim at Bargaineering had opened an account at Capital One Direct. He reported receiving an email that had the following paragraph instead of the above charts:

Your current Capital One account is held in Capital One Bank (USA), N.A. (which is totally separate from Capital One, N.A.). This means your current ING DIRECT and Capital One accounts will continue to have separate FDIC insurance, and both accounts will stay covered up to $250,000 each. So really, there’s nothing for you to do but kick back, relax, and keep on saving.

So if you are affected by this November merger, you need to determine if this may cause some of your deposits to lose FDIC coverage. If your total deposits from ING DIRECT and Capital One, N.A. are way under $250,000, you don't have to worry about this merger. If your total deposits are over $250,000, you should then review the FDIC rules regarding bank mergers.

Below is an excerpt of page 102 of the FDIC Comprehensive Seminar on Deposit Insurance Coverage For Bankers which describes the rules of what happens to FDIC coverage when banks merge:

Basic rule - There is separate deposit insurance coverage (i.e., for deposits at each bank) for up to six months (starting with the effective date of the merger) if a depositor had funds in two banks that merged

Special exception for time deposits – For time deposits (i.e., CDs) issued by the assumed bank, separate deposit insurance coverage will continue for the greater of either six months or the first maturity date of the time deposit.

ING DIRECT describes these details in its merger legal Stuff tab. They are inline with the FDIC rules. Below are the ING DIRECT excerpts:

How does this change affect the FDIC insurance coverage on my checking and savings accounts?

FDIC coverage on checking and savings deposits made before November 1, 2012, will stay separate until 6 months following November 1, 2012 (or, May 1, 2013). Then, your FDIC coverage will be based on your total combined deposits at Capital One, N.A. and ING DIRECT up to the FDIC max of $250,000 per depositor — or $500,000 for joint depositors.

What about the FDIC coverage for my CDs (including IRAs)?

If you opened CDs with ING DIRECT and Capital One before November 1, 2012, they’ll stay separately insured until the 1st maturity date after May 1, 2013.

What if I roll over my CD?

If you roll over your CD with the same terms (same time period and dollar amount) between November 1, 2012, and May 1, 2013, then it’ll stay separately insured until the 1st maturity date after May 1, 2013. If you change the terms, add funds or don’t roll over during this period, then the CD will be separately insured until May 1, 2013.

My Take and My Questions

When the first merger became official in February, it appeared that ING DIRECT's banking entity was going to remain separate from the two Capital One banking entities. Since Capital One already had two separate banking entities (with separate FDIC coverage), it seemed an additional one wouldn't cause a problem. In addition that would have made things simple since there would be no FDIC coverage changes for customers. For some reason, Capital One has decided to consolidate ING DIRECT's bank entity into Capital One, N.A. I'm not sure why that decision was made. I guess it will save some money.

It's also interesting they decided to consolidate ING DIRECT into Capital One, N.A. instead of Capital One Bank (USA), N.A. Since online bank deposits were mostly held by Capital One Bank (USA), N.A., why not merge ING DIRECT into this entity? Perhaps Capital One Bank (USA), N.A. will eventually be merged into Capital One, N.A.?

There's another merger that might occur in the future. The accounts opened under Capital One Direct may eventually be moved under ING DIRECT (or whatever this will be called). A few months ago Capital One Direct stopped accepting new applications. Instead it just pointed new customers to ING DIRECT. So it does appear that Capital One Direct will eventually be merged into the new ING DIRECT. If Capital One Bank (USA), N.A. mostly holds deposits from Capital One Direct, this may allow the consolidation of the two Capital One banking entities into just one.