The Federal Reserve Board has approved a rule that places new limits on mergers and acquisitions in the banking industry, effectively slowing the growth of the largest institutions in yet another strike against “too big to fail” banks. The rule prohibits a financial company from combining with another company if the ratio of the resulting company’s liabilities exceeds 10 percent of the aggregate consolidated liabilities of all financial companies.
Liabilities of a financial institution are defined in the final rule as the difference between its risk-weighted assets, adjusted to reflect exposures deducted from regulatory capital, and its total regulatory capital. Firms not subject to consolidated risk-based capital rules would measure liabilities using generally accepted accounting standards. Financial companies subject to the limit include insured depository institutions, bank holding companies, savings and loan holding companies, foreign banking organizations, companies that control insured depository institutions, and nonbank financial companies designated by the Financial Stability Oversight Council for Board supervision.
