Bank mergers and acquisitions have been in the news a great deal lately. It seems like these consolidations have increased in frequency since the financial crisis and the sub-prime mortgage debacle of 2008. However, a brief look at a list of mergers since 1930 shows that mergers and acquisitions actually became more common in the mid-1980’s. They have continued at a similar, if slightly accelerated, pace until the present day.
The terms merger and acquisition are distinct but are generally used interchangeably in regard to bank consolidation. It is really a question of perspective that determines which word you would use. When banks join, they may do so mutually or as a large financial entity accepting a smaller entity into its fold. Either way, one bank emerges after two banks conduct a financial transaction which alters ownership and leadership.
Banks are financial organizations in much the same way that a large business is. It has shareholders and people who depend on the bank’s profitability. When banks see an economic advantage in joining forces with another bank, they have just as much impetus to consolidate as a business might. Whether these moves are actually profitable is another question.
The number of bank mergers has gone up recently but they follow a pattern that began decades ago. Certainly some of the banks which have undergone merger or acquisition did so under economic pressure or desperation derived from the most recent financial crisis. However, banks have been increasing merger activity since the 1980’s, whether times were good or bad. This may be a reaction to globalization, as a smaller world makes it harder for so many banks to coexist.
One result of this phenomenon is the internationalization of banks. Many banks already operated, in one form or another, across national boundaries before this period. However, banks in the present day are much more likely to have international interest and holdings.