Merger, an Effective Approach to Prevent Bank Failure

​Banks play an important role in the country's economy and payment system. With the uptrend of the share of the private sector in the banking system, which does not have the support of the government in delivering its obligations, the risk of bankruptcy has also increased. Factors such as economic recession, inflation, and international sanctions would deteriorate the efficiency of the banking system and eventually result in bankruptcy. If one or more banks experience bankruptcy, it can lead to an economic crisis with significant social, political, and national security implications. One of the main solutions, which has been practiced to avoid bankruptcy during a financial crisis, is bank merger. In this article, the positive effects and outcomes of bank mergers have been studied. The merger of banks is one of the most effective ways to rescue the distressed entity from economic collapse or bankruptcy. Benefits of merging banks include, but are not limited to, increased monetary power within the market due to expanded customer and deposit base, increased capital for the bank, and equity for the shareholders, synergy in lowering general and administrative expenses, overhead costs, savings in expensive infrastructure costs, increased productivity, tax efficiency, lower credit, and operational risks, and eventually higher returns on investments and assets.