Macro-financial Regulation of Banking M&A as a Contributor to Global Financial Stability

The FinReg (Financial Regulation) blog, hosted on the website of Duke University, published an article authored by Eduard Dzhagityan, Associate Professor of the School of World Economy, HSE, entitled: “Financial Stability Needs Macro-Financial Regulation of Banking M&A.”

The M&A processes as a primary path to inorganic growth do strengthen the stress resilience of banks and banking sectors at large. At the same time, the exposure of banking M&A to global financial markets volatility, interconnectedness of financial institutions, and uncertainty of the world economy exacerbates the risks of banking consolidations. Besides, the post-crisis international banking regulation reform (Basel III) still leaves open the questions of minimization of risk-taking during the M&A processes, which remains one of the least addressed aspect of financial intermediation, owing to which a number of M&A deals lack synergetic effect and fail. In this regard, Dr Dzhagityan proposes a concept of regulation of banking M&A (‘mergulation’) to be based on microprudential standards coupled with the risk-centered mechanism for supervision of the M&A deals aiming at early identification and proactive management of systemic risks, as well as cost optimization. This will help to rise the post-M&A synergy and decrease the number of unsuccessful M&A deals. Otherwise, the multifaceted origins of systemic risks and the lack of reliable instruments for their minimization will further diminish opportunities and potential of banks during the M&A deal making and the perspectives of their growth afterwards. Without doubt, the efficacy of the international banking regulation policy will largely depend on the extent to which mergulation will become a critical domain of the contemporary banking regulation and its risk-centered platform, as well as on the extent to which it will ensure and promote the continuum of financial intermediation during and after the completion of the banking M&A deals.

Financial Stability Needs Macro-Financial Regulation of Banking M&A