What are bank mergers?

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A merger in economics implies that one or more companies (or banks, as is the present case) are joined to form a new and can be done in two ways: The first is by absorption, which is kind of purchase, where owners of one of the companies no longer have power over the new entity (no longer owners) by highly complex agreements. This type is not allowed in merging banks (or at least not explicitly) because for various reasons, especially the formation of a giant bank that accumulates a lot of power, states (that ultimately protect us to dig) see that better a healthy competition between various entities.

The second is a simple merger where both companies own end up owning the entity is formed.States regulate such mergers much as one can not avoid forming a powerful bank (which happens in most cases) but the power within him is scattered among many partners. The rules must be clear and precise to avoid absorption is “makeup” as a single fusion. Bank mergers can be made both in times of recession or economic expansion but have almost the same purpose: to use the resources of one or another bank to solve the problems generated by their weaknesses, can we both share resources and weaknesses or that one “help “other.

Although it pains me to say, to give an example of a situation where a merger could have avoided many problems, lack of decision by the government in my country in the past led to the demise of one of the oldest banks had. I have to comment that from 1948 to mid 1980 the state was the owner of the bank, ie all banks were state, with some very specific exceptions. In early 1994 a scandal rises around Banco Anglo Costarricense because their managers bought bonds became worthless accumulating huge losses. It was decided to close the bank (many say pressure from international organizations who felt that the country had “too many” state banks and thereby increased the bureaucracy), which eventually resulted in a whole economic meltdown and especially “social”, many believe that the losses generated by the closure only far exceeded estimates. A fusion paying the same amount to economic losses that taxpayers had to pay but the social impact would have been much lower, increasing the prestige that the bank had thanks to the confidence of the government and the merger with another bank, which would have resulted in the economic losses, perhaps minimizing the effect of the same.

Expansion periods are very conducive to these bank mergers since many such institutions looking to expand but lack the resources healthy, while others have such resources but do not have the experience, as an example. In times of recession mergers can be used to mask bad situation and has not been uncommon for two banks masked their losses and fuse and then break a few weeks of the merger. At least in theory, a bank merger is to pool efforts and resources of one or more institutions in order to promote to customers, which are its reason for being and the accumulation of capital, but to prevent an entity acquires much power regulates its operation for the protection of the same customers.

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