In 1994, Congress passed a landmark law that allowed America's banks to merge across state lines with few restrictions. To allay fears that the industry's whales would become far bigger and even more powerful, the measure limited the total share of the nation's deposits that any one entity could hold to 10%, as well as restricting the percentage within a state to 30%. The cap applied only to acquisitions; the giant lenders that advanced over the threshold could compete for new deposits via organic growth without facing any limits on their share of the total. By 2014, the nation's three largest players, JPMorgan Chase, Bank of America and Wells Fargo, had grown quickly—in part via their respective rescues of Washington Mutual, Merrill Lynch and Wachovia in the Great Financial Crisis—to exceed the 10% ceiling. Hence, the rule has essentially blocked the three behemoths from acquiring any rival lenders for a decade.
The 1994 act, however, provided a loophole that allowed waivers from the 10% maximum for buyers that stepped up to rescue failing lenders that the FDIC stood poised to shut down. On May 1, JPMorgan benefited from the dispensation when it purchased virtually all the assets of First Republic from FDIC receivership, clearing the wreckage from the second largest banking failure in U.S. history, a disaster exceeded in scale only by the 2008 collapse of WaMu. Overnight, the nation's biggest bank added significant heft, and notched what looks like a coup for its shareholders that at the same time stabilized the shaky outlook for regional banks.
