Bank M&A May Hinge on Deposit Cap Rule

BofA's deposit market share would have been 11.89% of the more than $7 trillion in U.S. deposits at the end of the second quarter, if deposits from both Countrywide Financial and Merrill Lynch are included, according to Highline Financial data analyzed by TheStreet.com.

But Countrywide's deposits are housed in the firm's thrift subsidiary, while Merrill Lynch's roughly $100 billion in deposits as of June 30 were in both thrift and industrial loan company units, so they didn't bring the bank's total deposits above the 10% limit. Even without the acquisitions, however, BofA was hovering at 9% of total U.S. deposits.

Wells Fargo is also close the limit. According to a Federal Reserve statement late last month approving Wells Fargo's merger with Wachovia, the San Francisco-based bank "would not control an amount of deposits that would exceed that nationwide deposit cap on consummation of the proposal."

As of the end of September, the San Francisco-based bank said it would own a combined $731 billion of deposits from the deal, or 9.9% of total domestic deposits, according to initial Fed deposit estimates for the third quarter.

Wells agreed that it "would not exceed the nationwide deposit cap" at the time the deal is completed, the statement said. "This commitment includes a commitment that Wells Fargo will reduce its deposits by any amount that exceeds the national deposit cap" by no later than Dec. 31, it added.

A Wells Fargo spokeswoman declined to comment further for the story.

Scott Siefers, an analyst at Sandler O'Neill & Partners, says banks typically sell branches and the deposits that go with them or initiate pricing changes, such as lowering the interest rates on certificate of deposits, to gradually "run off" deposits.