So regarding M&A in the banking industry, I understand that:
“U.S. banking laws prohibit one bank from acquiring another if the acquisition would push that bank over 10% of U.S. deposit market share.”
But what if customers transfer their accounts to a bank on their own?
Would the government actively prevent customers from doing this?
Thanks!
If a bank has over 10% of U.S. deposit market share, they’ll be in close contact with regulators who will make sure things are under control. There are already a few banks at this level, so it’s definitely possible.
Let me break it down: if a bank holds 9.9% of the U.S. market share and some large clients move their deposits, pushing it past 10%, there isn’t really a restriction.
Since a couple of banks, like Chase and Bank of America, are already above that 10% threshold, the answer seems to be ‘no’—they wouldn’t be prevented from going over the cap.
@Sloan
Exactly what I was looking for!
So basically, organic growth is okay, but M&A is restricted?
Thanks!
So basically, organic growth is okay, but M&A is restricted?
Thanks!
Just keep in mind that government policies can shift, especially with new administrations, which might affect rules on ‘too-big-to-fail’ banks.
@Rowen
The Canadian banking system is an example where big banks dominate the market, but it’s seen as very stable. Most of their major banks hold over 10% of the market share.
Darby said:
@Rowen
The Canadian banking system is an example where big banks dominate the market, but it’s seen as very stable. Most of their major banks hold over 10% of the market share.
Some smaller banks like Laurentian Bank and EQ Bank hold less, but all of the Big Five and National Bank are above that 10% threshold.
@Rin
True, I may have exaggerated a bit. RBC holds 20%, TD has 18%, Scotia has 15%, BMO 12%, and CIBC 10%. Plus, there are many small credit unions.
Darby said:
@Rin
True, I may have exaggerated a bit. RBC holds 20%, TD has 18%, Scotia has 15%, BMO 12%, and CIBC 10%. Plus, there are many small credit unions.
Understandable, given that a few banks really do hold the bulk of the market.
@Rin
Yep, plus credit unions like Desjardins and ATB also hold deposits but aren’t technically banks.
Darby said:
@Rin
Yep, plus credit unions like Desjardins and ATB also hold deposits but aren’t technically banks.
Oh, right. I wasn’t even counting the credit unions!
Interesting read:
https://scholarship.law.unc.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1190&context=ncbi
Chase received permission to go over the 10% limit when it acquired First Republic in 2023. Bank of America has also been over that limit since before the financial crisis. Wachovia’s acquisition by Wells Fargo put them over 10% as well, but permission was granted due to unique circumstances.
Customers are free to switch banks whenever they want (although many don’t due to habit and lack of financial knowledge). Some people mistakenly think they can only have accounts with one bank or credit union at a time.
The federal government doesn’t prevent customers from moving accounts between banks.
@Rowen
It’s actually smart to keep accounts with multiple institutions. That way, if there’s an issue with one bank, you still have access to funds at the others.
Zed said:
@Rowen
It’s actually smart to keep accounts with multiple institutions. That way, if there’s an issue with one bank, you still have access to funds at the others.
Totally agree. I do this too—most of my funds are in a local credit union, but I keep a portion in NavyFed. It saved me a few times, like when my CU merged and my card got shut off before they mailed out a new one.
The M&A laws aim to limit consolidation through acquisitions, not to cap organic growth. Even then, the rule can sometimes be waived.
That doesn’t mean the government won’t regulate large banks in other ways if they choose to.
@Skyler
Thanks! That’s really helpful, exactly what I needed to know.