What Is Bank Consolidation?

Beginning in the early 2000s, the United States began to experience a great increase in the number of large bank mergers, including Bank of America with FleetBoston and JPMorgan Chase with Bank One. This has been made possible by the Riegle-Neal Act, which permitted interstate branch banking starting in 1997.

Bank consolidation is the process by which one banking company takes over or merges with another. This convergence leads to a potential expansion for the consolidating banking institution.

One reason for banks to consolidate is to alleviate competing institutions. Consolidation may also occur when a banking house wants to gain domestic or international capital power. The larger a company is, the more potential it has to compete with other mega banks. Another motivation for banks to consolidate is the ability for firms to expand their providing services while decreasing the cost of operating two institutions.

On September 26, 2008, Washington Mutual, once the sixth largest bank in America, declared Chapter 11 bankruptcy. JPMorgan Chase promptly purchased the banking subsidiaries from the Federal Deposit Insurance Corporation. Since then, Washington Mutual has been managed as a part of JPMorgan Chase.