Break Up Bank of America if Capital One Deal Falters (Update 3)

Updated with market lose informtion and a statement from Capital One.

NEW YORK ( TheStreet) -- What are they afraid of?

After seven months, three public hearings giving voice to pious "consumer advocates" who say that allowing Capital One to become the seventh largest U.S. banking company through its agreement to purchase ING Direct (USA) from ING Groep ( ING) would be such a terrible thing, the Federal Reserve again failed to rule on the deal, even following Monday's special and delayed meeting on the subject.

How much further information could the Federal Reserve's Board of Governors possibly need?

It would appear that the Fed is afraid of its own shadow on this one. After all, if the Fed were to determine that Capital One -- which would have roughly $298 billion in total assets if the ING Direct (USA) deal were completed -- were to pose such a dire threat to the U.S. economy, being "too big to fail," then it would be forced to explain why it doesn't advocate the breakup of Bank of America ( BAC), JPMorgan Chase ( JPM), Citigroup ( C), Wells Fargo ( WFC), U.S Bancorp ( USB), Bank of New York Mellon ( BK), which would still be larger than Capital One.

Oh wait - I forgot. Investment banks Goldman Sachs ( GS) and Morgan Stanley ( MS) are technically bank holding companies that gather deposits. They would also have larger balance sheets than the combined Capital One, so they must also be considered dire threats by the consumer advocates and possibly by the new, craven Fed.

The Fed might also need to revisit its decision to quickly approve Wells Fargo's acquisition of the troubled Wachovia at the end of 2008. What a terrible deal that was to the U.S. economy.

Such "systemic risk."

Not only did the Wells Fargo/Wachovia combination lower systemic risk by preventing a possible failure for Wachovia and more expense for the government, the combined company has been performing quite well.

Among the "big four" U.S. banks, Wells Fargo has had, by far, the strongest and most consistent earnings performance over the past year, with a return on average assets (ROA) ranging between 1.1% and 1.27% over the past five quarters, according to HighlineFI.

Let's not forget that the Fed's vacillation on the Capital One/ING Direct (USA) deal also affects Capital One's agreement to purchase HSBC's ( HBC) U.S. credit card portfolio, for which it needs the liquidity boost from the ING Direct deal.

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