LaSalle Bank Deal Could Push Bank of America Over 10% Deposit Cap

There’s a law in this country that prevents any one bank from holding over 10% of the insured deposits. If Bank of America manages to hold on to its deal to buy Chicago’s LaSalle Bank, Bank of America would hold approximately 10.7% of deposits—about 5.1 billion dollars too much.

Bank of America says its confident that it will be able to slide under the cap should the deal go through. Said deal is currently being challenged by an uninvited takeover bid (of LaSalle’s parent company ABN Amro) by the Royal Bank of Scotland. Drama!

The 10% cap was instituted in 1994, when no banks were anywhere close to controlling 10%. Bank of America has been lobbying to get the cap removed, but has so far been unsuccessful. —MEGHANN MARCO

LaSalle Deal May Push Bank Of America Over 10% Deposit Cap [CNN Money]
(Photo: Scarequotes)

PREVIOUSLY: Bank Of America Threatens $220 Billion Lawsuit If It Doesn’t Get LaSalle Bank
Bank of America May Not Get LaSalle After All

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  1. Seth_Went_to_the_Bank says:

    A spokesman said the bank would simply charge its customers $5.1 billion in additional fees to remedy the problem.

  2. Seth_Went_to_the_Bank says:

    That was a joke.

  3. vr4z06gt says:

    sweet the fees would be going down you mean from what they charge now!!! I’M IN!

  4. bedofnails says:

    As long as they don’t come to life as people.

  5. Steveo says:

    I’m with LaSalle Bank now, I like their service, nice banks, good people. But if this deal goes through I’m switching. I never hear anything good about Bank of America.

  6. swalve says:

    10% of what deposits? All of them in the US?

  7. The Bigger Unit says:

    @Seth: uhhh…wouldn’t that put them an additional 0.7% over the cap limit?

  8. DCAview says:

    @ Swalve: It’s generally most deposits housed at FDIC insured banks in the United States (though there are some exceptions at the margins for things like mortgage escrow accounts).

    First, the federal law is probably better thought of as a deposit-acquisition cap than a strict deposit cap because it prohibits one bank from buying another if the combined company would control more than 10 percent of the nation’s deposits. The law doesn’t stop a bank from cracking the 10 percent cap through internal growth (like opening new branches or expanded online banking).

    Second, Bank of America hits this problem every time they make a significant acquisition. When B of A bought FleetBoston back in 2003, the combined company squeaked by the cap, but it was close. That’s why it was so surprising to a lot of people that B of A was able to stay under the acquisition cap when it bought MBNA in 2005. MBNA was primarily a credit-card bank, but it had a lot of deposits (primarily in CDs) that it used to back the credit card loans.

    For B of A to be able to buy MBNA and maybe now LaSalle since acquiring Fleet means two things may have happened:

    - B of A chose to allow some low-value deposits (like those MBNA CDs) to run off, lowering its relative control of the deposit marketplace, and/or

    - Customers at B of A’s existing deposit business (read: branches) have shifted their deposits toward other companies or investments.

    Either way, the result is a company that’s running in place, forced to make a major acquisition every few years solely to retain its share of deposits.

  9. atbradley says:

    My impression, from reading news articles on BOA since they acquired Fleet Bank is that BOA has been haemorraging accounts in New England so fast they should be able to manage acquiring LaSalle if they just wait a few months more (what’s the point of buying all these banks, just to lose their customers?). Fleet had a horrible customer service reputation but BOA still managed to do worse.

    By the way, Bank of America’s management hates the abbreviation BOA. For some reason, they’re extremely sensitive about being in any way associated with a large snake which squeezes the life out of its prey before devouring it whole.

  10. shoegazer says:

    @The Nature Boy: Nope because the fees would then be transferred to income from fees as opposed to liabilities from deposits. Seth did, indeed, go to the bank.

    Oh and why does this merger get a free pass from the fucking competition authorities and Whole Foods doesn’t? Talk about politicizing business.