DEFINITION of 'Assisted Merger'

Assisted merger is the bringing together of two or more financial institutions with the assistance of a government agency or regulatory organization. Assisted mergers typically take place in emergency situations, where there might be an imminent failure of a financial institution due to severe distress.

BREAKING DOWN 'Assisted Merger'

Bank failures can cause havoc on depositor confidence, the financial system, and the economy as a whole. Because of this, regulators, such as the Federal Deposit Insurance Corporation (FDIC), want to ensure that banks that do fail are quickly dealt with. To ensure that the process of winding a bank down goes quickly with the least damage done to the deposit insurance fund, the FDIC is allowed to take action to help the troubled bank merge with a healthier bank. The FDIC was given the authority to implement assisted mergers in the Federal Deposit Insurance Act of 1950.

The FDIC begins this process by collecting information on all of the failed bank’s assets and liabilities. It then notifies the public and other financial institutions of the failed bank’s situation. At this point other financial institutions may be interested in taking over some of the failed bank’s business, but they may want financial assurances to help them with the purchase. The FDIC creates an assistance agreement outlining the type of assistance that it will provide to the failing institution or to the assuming institution, including the terms under which the assuming financial institution takes on the assets and liabilities of the bank that failed.

Financial institutions may be skeptical of how regulatory bodies handle assisted mergers, especially when it comes down to how regulators determine which banks are forced to merge, which banks are allowed to acquire another bank, and what qualifies a bank to be able to acquire another. In general, regulators prefer other, healthier financial institutions to take over the assets and liabilities of failed institutions because this approach does not draw down on deposit insurance fund assets. 

RELATED TERMS
  1. Assuming Institution

    Assuming institution is a healthy financial institution that ...
  2. Asset Valuation Review (AVR)

    Asset valuation review is a process that establishes an estimate ...
  3. Capital Loss Coverage Ratio

    The difference between an asset’s book value and the amount received ...
  4. FDIC Improvement Act (FDICIA)

    The FDIC Improvement Act was passed in 1991 in response to the ...
  5. Financial Institution - FI

    A financial institution is a company that focuses on dealing ...
  6. Niche Banks

    Niche banks cater to and serve the needs of a certain demographic ...
Related Articles
  1. IPF - Banking

    The History Of The FDIC

    Find out why this corporation was developed and how it protects depositors from bank failure.
  2. Small Business

    A New Plan To Prevent Future Bailouts

    This new and innovative plan by the FDIC could help the government avoid the next bailout.
  3. Investing

    FDIC Sues Bank of America Over Deposit Insurance

    In a lawsuit filed Monday, the FDIC says Bank of America owes at least $542 million for deposit insurance.
  4. Insurance

    From Booms To Bailouts: The Banking Crisis Of The 1980s

    The economic environment of the late 1970s and early 1980s created the perfect storm for a banking crisis.
  5. Insights

    What Do the Federal Reserve Banks Do?

    These 12 regional banks are involved with four general tasks: formulate monetary policy, supervise financial institutions, facilitate government policy and provide payment services.
  6. Investing

    Bank Failure: Will Your Assets Be Protected?

    The SIPC and FDIC insure against personal financial ruin when banks or brokerages go belly up.
  7. Insights

    The Role of Commercial Banks in the Economy

    We interact with commercial banks daily to carry out simple financial tasks. That said, the function and creation of a commercial bank is anything but simple.
  8. Investing

    Introduction To Institutional Investing

    Investopedia explains: Learn about institutional investing and all of the major players in this field.
RELATED FAQS
  1. What are key government regulations that affect investing in the banking sector?

    Discover how the global financial crisis of 2008 changed the face of banking in the United States and around the world by ... Read Answer >>
  2. Does the FDIC cover identity theft?

    Learn whether or not identify theft is covered by the FDIC, and find out what steps you can take to prevent or report identity ... Read Answer >>
Trading Center