Bank mergers and acquisitions are considered necessary for the economy, and the reason is that there are too many banks in the country, leaving most banks to struggle in coming up with a profit.
Harrison Steans, who is a legendary Chicago banker and bank investor, has predicted that most of the banks in Chicago will be merged in the near future. There are currently more than 200 banks in Chicago, and half of them will be merged in the coming years according to him.
The cost of bank failures in the year 2010 was estimated to be around $24.18 billion by the Deposit Insurance Fund! That is an incredibly high number, and more banks are estimated to fail in the coming years, since they are seemingly unable to post considerable returns in order to survive.
The majority of the banks in the country are struggling to make ends meets, which has increased the chances of them facing government seizure. They also do not help themselves by offering poor services and products to customers, which affects their returns.
More banks are expected to merge together in order to survive, since the government is also putting pressure on banks to raise their level of services. Banks which are smaller in size and business are then taken over by bigger banks that have the infrastructure to support them and still offer world class services and products to their customers.
The market also supports banks which have merged together in the last couple of years, with a majority of them posting high annual profits. The benefit of a merger between two banks also helps the shareholders in the underperforming bank since it can help save them millions of dollars in case of a failure in the future.
The effects of a bank failing and filing for bankruptcy are felt by the shareholders, the people in the bank, and the many who were using the products and services of the bank. The federal insurance fund is also drained of hundreds of millions of dollars in order to stabilize the market and the economy. Yet another incentive for the government to promote bank mergers and acquisitions, since it is considered to be a mutually beneficial arrangement for all parties concerned.
It is estimated that over the course of the year and the years ahead, there will be an increase in the number of bank mergers and acquisitions that will see some major banks and corporations merging and growing with each other.
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