Why Do Banks Merge?

If you’ve ever noticed that your bank changed its name or logo or heard about two banks joining together, you’ve likely seen a merger in action. Banks merge when they decide to combine two banks into one, to reduce operating costs, expand into new markets and boost revenue and profits. But why do banks choose to merge? Here’s a straightforward look at the main reasons.

Merging Helps Banks Grow Faster

Another major reason for merging is to quickly grow. When two banks join, they instantly gain each other’s customers and market reach. Instead of opening new branches one by one or slowly expanding their digital services, merging allows them to quickly cover more ground and serve more people.

Example: If a bank in Maryland merges with a bank in Virginia, the merged bank can now serve customers across both states—helping them become a bigger player in the market.

Merging Saves Money

One of the biggest reasons a bank merges is to save on costs. Costs for running a bank include things like:

• Branch locations
• Employee salaries
• Technology
• Advertising

When two banks merge, they can close branches that are close in proximity and reduce operating and salary costs while increasing revenue and profits.

Example: Imagine two banks, each with branches in the same city. By merging, they might decide to close one branch, saving on rent and operational costs.

Merging Creates More Resources for Customers

Banks that merge often have a better ability to offer more services and products to their customers. With more resources, the merged bank might be able to improve its digital banking services, offer better interest rates, or add new types of loans and deposit products.  By offering additional products and services the bank may be more attractive to customers who want more options.

Example: After merging, a bank could introduce new loan products, online tools, or special savings accounts to help meet the needs of different customers.

Merging Can Bring Better Technology

In today’s world, technology is key for banks, from online banking to mobile apps to cybersecurity. By merging, banks can afford to invest in advanced technologies to provide improved and convenient services and tools.

Example: After merging, a bank might be able to offer a new mobile app with advanced features like budgeting tools, easy money transfers, and spending insights.

HOW DO YOU BENEFIT FROM ONLINE BANKING OPTIONS?

Merging Helps Banks Compete

Just like any other business, banks compete with each other to offer the best services, attract new customers, and increase revenue and profits. When two banks merge, they can combine their strengths to become a bigger competitor in the market. This can help them stand up to larger banks or avoid being left behind in the industry.

Example: Two regional banks that merge can combine their resources to offer competitive rates and services, making them a stronger alternative to larger national banks.

Merging Can Create a More Stable Bank

Finally, mergers can make banks more stable. Combining two banks’ finances can create a stronger company with a bigger cushion against financial ups and downs. This is especially helpful during times of economic uncertainty, when a bank’s financial strength can make a big difference for both customers and employees.

Example: A merger with a stable partner can give the bank more financial support, making the newly formed bank less vulnerable to economic shifts.

LEARN HOW BASEL III REGULATIONS STRENGTHEN THE RESILIENCE OF BANKS DURING ECONOMIC HARDSHIP

Banks merge to become more efficient, save money, grow faster, improve their technology, become more competitive, and create a stronger, more stable bank. For customers, while there could be some changes to the branches, products, and systems they’re used to, a merger might also mean more services, better technology, or new branch locations.

While mergers might seem complicated, at their core, they’re a way for banks to combine resources and create a stronger company that can better serve customers and compete in a challenging industry.

THE DIFFERENCE BETWEEN MERGERS & ACQUISITIONS