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What is a Bank Merger?

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  • Written By: N. Madison
  • Edited By: Heather Bailey
  • Last Modified Date: 03 December 2016
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A bank merger occurs when banks join to become one. Many people think of bank mergers as something that occurs between two banks, but it may involve more than two in some cases. No matter how many banks are involved, the merger results in a single bank with one identity rather than multiple banks with multiple identities. There are two common ways in which a bank merger may be accomplished: one is through a buyout and another is via cooperation with bank shareholders.

To understand what a bank merger is, it may be helpful to compare it to marriage. A marriage is the joining of two people while a bank merger is the joining of two or more banks. When banks merge, the separate banks lose their identities and take on a single identity. For example, the merged banks may take on the name of one of the banks involved in the merger or they may create a new name. In many cases, it is preferable to keep one bank's name for the new identity, as it may have name recognition value.

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The main benefit of a bank merger may be the ability of the merging banks to not only pool their resources, but also expand their market share. At the same time, the merging banks may enjoy a decrease in operating costs since they form a single bank rather than multiple banks with separate operating costs. In many cases, there are tax benefits involved in a bank merger as well.

Unlike takeovers, bank mergers are typically based on agreements. In most cases, the management and stockholders agree to allow a merger. These mergers also differ from takeovers in the fact that the change is usually considered a friendly one, and both banks usually stand to gain in the joining. With takeovers, the gain isn’t usually mutual.

There are cons to bank mergers as well. In some cases, the merger leads to job loss as the new bank seeks to cut costs. Likewise, these mergers may sometimes prove difficult as two or more banks have to work together to minimize disruptions in operations, systems, and processes.

There are often few changes for shareholders and customers in mergers. Shareholders are usually offered an equal amount of interest in the bank formed by the merger. Customers may notice some changes in bank policies, but effort is usually made to make the change as seamless as possible. For example, bank customers who have direct deposit set up with one of the banks are often permitted to continue using the same routing and account numbers. This saves customers the trouble of having their employers arrange for direct deposits using new account and routing numbers.

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