Bank Merger

17 Pages 4134 Words

resulted in the advent of the Money market and mutual funds in the 1970’s and caused more stress on this tightly regulated industry. Individuals pulled money out of the banks to earn higher interest in these instruments, which eventually compromised the banks’ capacity. Banks were no longer alone at the center of the savings/investment process because individuals and corporations could find high returns and cheaper financing from investment sources. This resulted in lower yields for banks since they had to pay out high returns and offer lower loan rates to compete. Large banks lost loan customers and sought to replace them by opening new loan markets.

Congress attempted to stabilize this trend through the deregulation act of 1980, which provided banks with more market-priced deposit vehicles. They also legislated for thrifts when they passed the deregulation act of 1982 to give Thrifts more freedom to make loans, purchase funds, attract deposits, buy and sell in financial markets and participate in underwriting and capital-provision. Deposit insurance levels were increased, depositories were given more freedom to buy funds, and government guarantees for home-mortgage debt were expanded.

This resulted in huge loses and failed thrifts. When the deposit insurance fund of the Federal Deposit Insurance Corporation reached more than it could absorb and thrifts started to fail, the Feds eased the rules against inter-state banking and market concentration so that viable depository institutions could take over failing or insolvent thrifts. They also loosened anti-trust guidelines in 1982 and in 1984 to permit bank mergers at significantly higher levels.

It was this period of regulatory easing that prepared the way for today’s bank-merger wave, a wave that has finally reached Memphis with the announcement of the merger between Memphis based National Bank of Commerce (NBC) and the gigantic Georgia based Sun Trust.

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