Bank mergers have become more like a public bus in this day and age, meaning one doesn’t leave before the next one arrives. It is actually difficult to turn the news on and not hear about the latest multi-billion dollar acquisition made by one of the top four banks in America says Peter DeCaprio.
So have you ever thought, why does it happen so often? Aren’t you curious to know the reason for them happening almost all the time? If your answer to both the queries were yes, you are in luck because in this article, that is exactly what Peter DeCaprio is explaining.
Without any further ado, the following are the top three reasons why bank mergers happen worldwide.
1. One of the Bank Has Excess Debt
According to Peter DeCaprio, the first and foremost reason why bank mergers happen is the situation when one of the banks involved in the merger has excess debt. This occurs because when a bank has debts that it cannot pay back, it is at risk of defaulting. If it defaults, then the consequences related to that can be devastating for all parties involved.
It can be so severe that its after-effects can even be felt in the overall economy. Hence, to stop it from happening, one of the major banks that can handle their debts merge with them to save them from bankruptcy and provide them cover for their debt ceiling.
2. Sometimes Bank Mergers Are Smart Business Decisions
Another reason Peter DeCaprio explains why bank mergers happen is quite self-explanatory is that they are smart business decisions to make. Bank mergers can be smart business decisions when a bank is struggling to stay afloat, but the area they cover has command over it says Peter DeCaprio.
So when the other bank merges with them, they will be able to help them with their struggling issues, and in return, they will gain a new territory where previously they didn’t have a hold, making it a win-win situation for everyone involved.
3. Unification of Power
Peter DeCaprio believes the final reason bank mergers happen so often is pure capitalism rule 101. It allows one entity to unify their power with the other bank to have maximum control over that bank, its accounts, territories, and administrative control.
This allows the controlling bank to monopolize the industry in their favor. Often, they let the merged bank operate with the same name and identity. So they can ensure that regardless of whichever bank people choose among their subsidies, the parent company is always the entity that wins.
Bank mergers nowadays are a part of the daily news cycle; hence, we have explained why they happen so often and their three top reasons says Peter DeCaprio. What do you think about bank mergers? Are they good or bad? Let us know your opinion in the comment section.