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. 

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