Bank Merger Essay Research Paper I — страница 2

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(Brigham 1079-80). Though some of these reasons for mergers may be legitimate, the underlying truth is that managers want their companies to grow in order to increase their own income. While they are concerned with providing consumers with the things they need, they are not concerned with the high prices that may result from a merger. In the banking industry, the accelerated search for a acquisitions or mergers occurs for a variety of reasons. Some mergers may be to provide diversification, giving the company a more competitive advantage. In just about all merger cases, including bank mergers, the merger represents a search for greater efficiency, a broader geographic reach, an expansion of customer base, a new mix of services, a reach toward technology, a need to compete in the

global economy (Fleet 1). But undoubtedly, many mega-mergers have and may be ego-driven. “Egos, every bit as much as business logic, can decide which mergers take place and which ones don’t. Clashes of this sort are common enough that investment bankers have developed a euphemism for them: social issues” (Viscusi 18). IV. “Merger waves” As history shows, mergers have come in four major waves. The first wave was in the late 1800’s when oil, steel, tobacco, and other basic industries consolidated. The second was in the 1920’s when utilities, communication, and auto companies merged. The third wave was in the 1960’s, the time when the conglomerate merger boom was going on. Finally the fourth and final wave started in the 1980’s and is still going on (Brigham

1080-1081). Bank mergers fall under this final category. Previous to eighteen, banks had a hard time consolidating mainly because of numerous anti-trust laws that have been passed, starting in1890 (Dymski 34). V. Events leading to the bank merger wave “The laws of the United States have been hostile to market monopoly since the passage of the Sherman and Clayton Antitrust Acts” (Dymski 13). The Sherman Anti-Trust Act, passed in 1890, was designed to control and prohibit monopolies by forbidding certain business actions that might reduce or eliminate competition within the market (Scott 347). The Clayton Act of 1914 was implemented to promote competition by outlawing actions such as acquisition of competitors, price discrimination, exclusive dealings, and interlocking

directorates that could reduce competition (Scott 65). These laws along with the Federal Trade Commission Act of 1914, which established the Federal Trade Commission with its regulatory powers, formed the back bone of U.S. anti-trust policy (Dymski 34). After the Depression, President Roosevelt and Congress were forced to take action. The McFadden Act, passed in 1927, prohibiting interstate banking, and the Glass Steagal Act, passed in 1933, making financial firms choose between wholesale or retail banking transformed the U.S. banking system. The banking system at this time was thought of as segmented, and market entry was almost impossible. “The bank manager’s obligations was to manage her institution of behalf of depositors- that is, with safety and soundness foremost”

(Dymski 35-36). In response to increased corporate reorganizations and mergers in the fifties, the Bank Holding Company Act was passed in 1956 followed by the Bank Merger Act in 1960. These laws, that required federal banking agencies to look further into the effects on competition of the prospective mergers, made it even more difficult for companies to merge (Dymski 34). Two recessions and high levels of price inflation were caused by chronic exchange rate depreciation, resulting in high interest rates. This led to the creation of money-market mutual fund, which gave upper and middle-income households an interest-earning alternative to bank deposits. “The “blue chip” corporations that had been the backbone of banks’ commercial and industrial lending turned to these

direct credit markets for most of their financing needs (Dymski 36). Commercial banks’ earnings were flat, trending downward through the 70’s, and bank owners wanted a change (Dymski 39). VI. Deregulation opens the door for bank merging Finally political leaders and industry regulators stepped in, resulting in the passage of the Depository Institution Deregulation and Monetary Control Act was passed in 1980. This deregulation was inevitable, with uncontrollable inflation, credit growth, and pressure from banks, something needed to be done and the federal government believed that this was the answer. This law gave banks more freedom, and the ability to compete with other financial firms. They were now able to make loans, purchase funds, attract deposits, buy and sell in