Effect of Mergers on Reserve Balance Requirements
A "merger" is the combination of two or more separate institutions into a single institution. Such combinations may take the form of statutory mergers, consolidations, acquisitions, or the purchase of assets and assumption of liabilities.1 The single institution that is formed is called the "merged institution" or the "survivor." Beginning with the maintenance period in which the merger took place, the survivor of a merger must maintain its reserve balance requirement and the nonsurvivor's reserve balance requirement in a single master account at the Federal Reserve.
The Federal Reserve encourages institutions to make the transition to the single master account structure as expeditiously as possible following a merger to facilitate, coordinate, and streamline the management of that account. In most cases, the nonsurvivor's master account is closed or converted to a subaccount at the time of the merger. However, in the event that an institution is not operationally prepared to close a nonsurvivor's master account or to convert the nonsurvivor's master account to a subaccount at the time of the merger, the Federal Reserve offers a transitional, multiple accounts arrangement to support organizational and operational restructuring after a merger. The arrangement, which may last no longer than one year following the merger effective date, entails the following.
- The surviving entity files one consolidated FR 2900. The combined institution receives one exemption amount and one low reserve tranche.2
- The reserve balance requirement for the merged institution is calculated from the deposit data provided on the consolidated FR 2900.
- For the maintenance period in which the merger took place, the balances in the survivor's master account and the balances in the nonsurvivor's former master account are combined to satisfy the merged institution's reserve balance requirement. After this period, only the surviving entity's master account balances can satisfy the merged institution's reserve balance requirement. The balances in the transitional account cannot be used to satisfy the merged institution's reserve balance requirement.
- Only the surviving entity's master account may hold respondent pass-through balances maintained to satisfy reserve balance requirements.
1. In general, a purchase of assets and assumption of liabilities in which both the seller and the buyer continue to exist is not a merger and does not qualify for merger treatment. Return to text
2. The consolidated FR 2900 will be filed weekly if either the survivor or the nonsurvivor filed the FR 2900 weekly prior to the merger. If both the survivor and the nonsurvivor filed the FR 2900 quarterly prior to the merger, the consolidated FR 2900 report will be filed quarterly after the merger. The Federal Reserve will review the merged institution's reporting status as part of the annual reporting category reassignment process (effective each September). Return to text