Analysis of Legal challenges of Merging ‎Unauthorized Monetary Institutions

Monetary crises caused by the activities of unlicensed monetary institutions in recent years in the Iranian monetary and banking system urged the Central Bank to mandate the merger of those unlicensed monetary institutions. On the other hand, according to the extra-legal decision of the Supreme Economic Coordination Council of the Heads of the Three Branches in August 2016, some other authorized monetary institutions affiliated with military organizations, some of which consisted in turn of the orderly merger of several unauthorized monetary institutions, were required to merge with the Sepah State Bank. This method, not only severely damaged the interests of direct and indirect stakeholders of these institutions, such as depositors, shareholders and employees of monetary institutions, but causes great damage to the public interest and to individuals through the creation of money and drastic devaluation of the national currency. Although merger is not unprecedented in non-monetary institutions, in case of monetary institutions, due to the their role in the national economy on the one hand and in gaining public confidence in the credibility of the national currency on the other, the effects and consequences of integration will be graver and not limited to companies to be merged, but all the society will be affected by it. Because the reason for revoking the license of, and merging, most of these institutions was their financial balance deficit and the loss of public deposits, they eventually imposed a heavy monetary cost on the Central Bank and the national economy. This was because they faced a liquidity deficit and were thus not able to repay the deposits on depositors’ demand. The Central Bank handled this problem by creating an unsecured line of credit to pay the debts of these institutions from the public fund, which led to the devaluation of the national currency and thus reducing the purchasing power and the value of assets. It also surfaced numerous legal problems such as the legal gaps, the incompetence and inefficiency of the enforcement system, and the law’s failure to safeguard the stakeholders’ rights. Therefore, in this descriptive-analytical article, by examining the transnational regulations of the merger in the leading countries in this field, the questions will be answered as to what the legal nature of the merger is, whether it is a business decision, whether it is necessary and effective, whether it has any place in the current legal system, and on the other hand, whether the Central Bank and the Supreme Economic Coordination Council are competent to decide on the merger of monetary institutions or if they have acted beyond the scope of their legal authority. The article will argue that the purpose of merger should, as recognized in countries where it first adopted, be to consolidate the capital and the labor in order to increase efficiency and productivity, and that it must take place within the framework of clear rules and regulations. It will also be demonstrated that in societies with competitive markets, merger is an optional, rather than a mandatory, event decided based on the economic interests of the entities involved, that lies in the reduction of costs and boosting profits. Decided in this way, merger can also serve public interest by enhancing product quality and competitiveness and ultimately strengthening the national economy. The article suggests that merger should not be forced by the governing bodies of the monetary and banking system, and that these bodies must be legally prevented from such interference, their role being carefully defined and limited by appropriate legislation. The decision must be laid with the directors and governing bodies of the candidate entities so as not to impose additional costs on the public on the one hand, and to respect the rights of all stakeholder on the other hand.