Regulators gave conditional approval for CIT Group's deal to buy OneWest Bank, paving the way for an institution that would be deemed systemically important, with $70 billion in combined assets.

The Office of the Comptroller of the Currency also simultaneously terminated a 2011 consent order against Pasadena, Calif.-based OneWest that stemmed from the financial crisis. OneWest, created in 2009 from the debris of the failed alternative-A lender IndyMac Bank, was found to have satisfied the terms of an independent foreclosure review, the OCC said.

CIT, a $48 billion-asset specialty finance company based in Livingston, N.J., would blow past the $50 billion threshold for institutions deemed systemically important as a result of the merger. CIT would become the 42nd largest insured depository in the U.S., controlling $30 billion in deposits and 73 branches, the Federal Reserve said in a 42-page order, dated July 19.

The OCC set two major conditions for approval of the merger in a 57-page announcement Tuesday. CIT must provide a comprehensive business plan within 120 days covering a three-year financial forecast, capital and funding plan. The bank must also submit a revised Community Reinvestment Act plan within 90 days.

It remains to be seen whether those conditions will satisfy the deal's critics.

"It will come down to the details of the two plans, which do matter," said Paulina Gonzalez, the executive director of the Community Reinvestment Coalition. "We are not clear that the regulators are going to hold the banks to standards that are high, and right now there are no standards, so we need public standards on these plans by which to measure them."

CIT did not respond to a request for comment; OneWest declined to comment.

Once it joined the SIFI club, CIT, led by John Thain, would be subjected to additional oversight, including the Federal Reserve's Comprehensive Capital Analysis and Review stress test.

The $3.4 billion merger, which was approved by both banks' boards a day shy of a year ago, was heavily criticized by community groups and supported by others at a public hearing in Los Angeles in February. The banks have committed to making $5 billion in community reinvestments over four years.

Nearly all of the combined bank's branches would come from the $22 billion-asset OneWest, which received lucrative loss-sharing deals from the Federal Deposit Insurance Corp. for taking IndyMac off the government's hands. Those arrangements would carry over to the merged company, the FDIC said earlier this year.

CIT Group controls CIT Bank, which operates a single, non-retail banking office in Salt Lake City, and is largely an Internet-based deposit-taking platform.

The Fed said it received 2,364 public comments on the merger, with a large number supporting the deal while others criticized the mortgage lending, servicing and foreclosure practices of OneWest.

Thain, the former chairman and CEO of Merrill Lynch before its merger with Bank of America, would continue to lead the bank. Steven Mnunchin, the chairman of OneWest's parent IMB Holdco, would become a CIT Group vice chairman and board member.

Mnunchin has spent the past five years building OneWest into a regional powerhouse in Southern California. The combination of CIT's middle market lending platform with OneWest's wholesale lending and branch franchise is expected to boost profits by 20% next year.

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