Fed might not resist mergers and acquisitions of big banks

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On behalf of Daniel Watkins of Watkins Firm, A Professional Corporation posted on Thursday, September 15, 2011.

One might be forgiven for thinking that big banks in California or anywhere else in the country might be operating on thin ice when it comes to getting even bigger. The words “too big to fail” conjure immediate hostility and memories of expensive bailouts that salvaged mismanaged businesses, and their executives.

However, it does not seem to be the case that banks would have to expect resistance to mergers and acquisitions that led to even bigger banks. Comments today by a key official at the U.S. Federal Reserve made clear that the Fed would not automatically resist big bank mergers. This was the position, even if the merged banks posed increased risks to the American financial system.

Federal Reserve Governor Daniel Tarullo made the comments at a Fed conference. The gist of his position was that the Dodd-Frank laws that created a financial overhaul instructed the Fed to assess the risk of bank mergers and acquisitions, but Dodd-Frank does not instruct the Fed to block bank M&A actions simply because of the existence of increased risk.

San Diego mergers and acquisitions attorneys noted that while not mentioning by name a potential merger involving Capital One, Mr. Tarullo said that the Fed’s analysis would look not only at the potential of the new bank’s failure, but at how it might “fill the gap” if one of the new bank’s larger competitors failed.

Mr. Tarullo said the Fed would be reluctant to regulate mergers of banks and put the U.S. at a disadvantage in its competition with other countries, which might not put similar restrictions on its banks.

Source: WSJ Deal Journal “Fed’s Tarullo: Big Bank Mergers Still Possible” Sept. 15, 2011