184

CHAPTER -VI

BANK MERGER LAWS IN UK, AUSTRALIA AND

SINGAPORE: A COMPARATIVE STUDY

6.1 Introduction: Consolidation has been a recognized progress in the

banking industries of many jurisdictions in recent decades. In many
emerging markets banks M&A have been driven by government policy
initiatives for restructuring. Frequently such initiatives have followed a
financial crisis and have become directed towards stabilizing banking
system and the economy749.

Banking business being distinct from other kind of businesses requires

extensive regulation. There has been a degree of harmony about the
need for comprehensive regulatory controls governing operations of
750
financial institutions and financial markets generally .In all
jurisdictions main objective of bank regulation is to maintain financial
stability, reducing bank failures and protection of consumers. In those
line main elements of the bank regulatory system includes: restriction
on the kind of businesses in which banks are allowed to engage751,
licensing of banks, provisions relating to the protection of depositors
interest752 and restrictions on control of banking business.

749
John Goddard, Philip Molyneux and TimZohu, ‗Bank Mergers and Acquisitions in Emerging Markets: Evidence
from Asia and Latin America‘ Available at http://ssrn.com/abstract=2006372 .

750
Harry McVea, „Financial Services Regulation under the Financial Services Authority: A Reassertion of the Market
Failure Thesis?‟ 64 Cambridge Law Journal (2005).
751
In India, Section 6 of the Banking Regulation Act, 1949 prescribe the Forms of business in which the banks may
engage- In Singapore, Section 30 of the Banking Act, 1970(As amended) deals with the non-banking business which
bank may engage. Section 5 of Banking Act,1959 in Australia states that ―Banking business means: (a) a business that
consists of banking within the meaning of paragraph 51(xiii) of the Constitution; or (b) a business that is carried on by
a corporation to which Paragraph 51(xx) of the Constitution applies and that consists, to any extent, of:(i) both taking
money on deposit (otherwise than as part payment for identified goods or services) and making advances of money; or
ii) other financial activities prescribed by the regulations for the purposes of this definition.
752
Section 5,8,10 read with section 159-164 of the FSMA,2000(UK)
 185

The business of banking is loaded with danger, arising mainly from the
volatility in the world economy and from human error of
misjudgment 753 . Banks operate largely by investing funds deposited
with them by the public. Thus the collapse of banks has disastrous
effect on the position of its customers or business enterprises and it can
induce financial panic. In order to prevent such disastrous effects on the
public and on the economy almost all jurisdictions have enacted laws
that would regulate the banking business.

The European Central Bank (ECB) expressed the view that one of the
root causes of the global financial crisis was that supervision and
regulation of banking and financial markets is loosely coordinated754.
Most jurisdictions have special regulations for banking companies;
however there is no difference in the law governing mergers of banking
companies755. Yet, some countries have laid down separate procedures
for bank merger. India, UK, Singapore and Australia have special
procedures for the amalgamation of banking companies.

Part-I of the study examines the central reasons for amalgamation of

banks in general and the rationale of special bank merger regulations.
In this part paper stress upon the risk factor and monopoly are the two
main constrains prescribed by the regulators for the disapproval of
amalgamation of banks. Part-II of the study examine bank mergers and
acquisitions in India from 1969 till 2015 and offers a conceptual
explanation of the causes that lead to mergers among the banking

753
E.P.Ellinger, Eva Lomnicka and Richard Hooley,‘ Elinger‟s Modern Banking Law‘ 4th Edn,(2009) Oxford
University Press P.27

754
Arlen Duke, ‗Competition policy and the banking sector: the need for greater international co-operation‘583
European Competition Law Review 2013
755
In UK, Part VII of the FSMA regulates the acquisition of the undertaking of banking companies. Court sanctions
such schemes. For the purpose of the merger of other companies the provisions of Companies Act, 2006 is applicable.
Court has the power to sanction the scheme.
 186

companies during this period. Part-III examines the law governing

bank mergers in UK, Australia and in Singapore. In the United
Kingdom, Part-VII of Financial Services and Management Act, 2000
govern the transfer of banking business undertaking and it has to be
sanctioned by the Court. The Financial Services Act, 2012 and The
Financial Services (Banking Reform) Act, 2013 has brought about a
number of changes to the UK banking system 756 .The key one is the
separation of retail banking from wholesale banking activities757. In the
light of the above ,part IV briefly identifies the type of fundamental
regulatory reforms that are needed for the purpose of encouraging more
M&A in the Indian banking industry.

Reasons for amalgamation of banking companies: The motivations

and expected benefits of bank mergers particularly in the Indian
scenario derive from the underlying forces operating in tandem in
forced and voluntary mergers. In the case of the former, the policy
objective is consolidation of the financial sector and strengthening of
the financial sector and consequently mergers are aimed at rescuing
weaker institutions and bodies and protecting the interest of the
depositors 758 .In the case of the latter, it is competitive aspects that
provide the incentive to spread and increase operations and customer
bases759 .

The chief economic reason that encourages bank mergers may be

roughly divided into cost reductions and benefits accruing from
economies of scale, or access to new markets. Mergers are often

756
Andrew Haynes, ‗The Banking Reform and the Corporate Sector‘ 2015 Company Lawyer. P.97
757
Ibid.,
758
M. Jayadev and Rudra Sensarma, ‗Mergers in Indian Banking, An Analysis‟ 14(4) South Asian Journal of
Management 2007(20-47) available at https://uhra.herts.ac.uk/dspace/bitstream/2299/3465/1/902962. The study reveals
that when a bank has shown symptoms of sickness such as huge NPAS , and substantial erosion of net worth , RBI
has intervened and merged the weak bank with a strong bank.
759
Ibid,.
 187

assumed to improve the performance of banks in terms of

profitability , by reducing costs incurred or by increasing revenues.
Thus studies of post merger accounting profits , operating expenses and
efficiency ratios , relative to the pre-merger performance indicate an
increase in profitability 760 .However further studies indicate that this
may not always be so in cases where there is a large lag between the
completion of merger and the realization of benefits , the results from it
are exactly opposite761. Some studies indicate that the firms may benefit
from diversification, particularly in the case of banks merging with Non-
Banking Financial Companies 762 .In the case of Indian Banking ,
substantial gains are received from mergers in the form of increased
efficiency but to limited short term period , not conclusively in the long
run763 .

The Essential basis of special treatment for banks and more specifically, of
closer regulation and supervision of banking institutions all over the world, is
premised on several reasons. Firstly, banks operate as a key stone of financial
stability, since they accept public deposits are an instrument of monetary
policy; have a significant role to play in the flow of cash. In this sense, banks
constitute a form of public good764 . and consequently , preventing the spread
of collapse in the banking system is vital to the welfare of the economy of the

760
Cornet MM Teharnian , ‗Changes in Corporate performance Associated with Bank Acquisitions‘ 31 Journal of
Financial Economics 211-234( 1992)
761
Berger and Humphrey, ‗Bank Scale Economics, Mergers, Concentration and Efficiency: The US Experience‘, The
Centre for Financial Institution (working papers 94), 25 Wharton School Centre for Financial Institutions , University
of Pennsylvania( 1994). http://fic.wharton.upenn.edu/fic/papers/94/9425.pdf visited on 20th June 2011.
762
Ibid,
763
Adrian R Gourley etal. ‗Non-parametric analysis of efficiency gains from Bank mergers in India‘. Department of
Economics, Lough Brough University, Discussion paper series No.18 (2006) available at
http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/Gourlay_Ravishankar_Weyman_Jones_Indian_Banks.pdf
visited on 20th June 2011.
764
V. Leeladhar, ‗Evolution of Banking Regulation in India – A retrospect on Some aspects‘ www.rbidocs.rbi.org
accessed on Aug 2009.[The special address delivered by Shri V. Leeladhar, Deputy Governor, Reserve Bank of
India at the Banker‘s conference ( BANCON) 2007 on November 26, 2007 ]
 188

state . Thus it is clear that it is a vital matter of state interest to ensure that
the banking system is regulated and protected , to enhance the efficiency of
the financial sector and also facilitate economic growth of the country .

The differential treatment of banking companies as opposed to non-banking

companies was the subject of consideration by the Supreme Court in Joseph
Kuruvilla Vellikunnel v. Reserve Bank of India765.In this case , Supreme court
deduced the following distinctions between the two as constituting the
underlying rationale behind their differential treatment:

3. A banking company cannot be compared to an ordinary company ,

because in the case of a banking company , the interest of the
depositors are paramount.

4. The parliament intended the Reserve Bank to have a decisive voice

in respect of certain matters pertaining to banking companies, due to
the expertise of the bank with relation to banking matters .

6.2 Control of Banking in the United Kingdom: The supervision of banking in the
United Kingdom was in the hands of Bank of England untill1998. The Bank of England
Act, 1694 authorized the incorporation of the bank by means of public subscription766.
Originally, the object of the bank was to raise the money required for the war with Louis
XIV767. It was prohibited from engaging in the general trade. The Bank of England Act
1696 granted monopoly as regards the carrying on of full –fledged banking business by
corporation768. The bank of England‘s three main functions – those of an issuing bank, of
a central bank, and of a settlement bank became well established in the 19th century. The
first attempt to give the bank s substantial monopoly of issuing bank notes was made in

765
AIR 1962 SC 1371
766
E.P.Ellinger, Eva Lomnicka and Richard Hooley, ―Elinger‘s Modern Banking Law‖, 4th Edn, (2009) Oxford
University Press P.29.
767
It also had to transact its business under the style of the governor and company of the Bank of England. The bank
was invested with a legal personality and it was a joint stock company. It was authorized to deal in the bill of exchange.
It was allowed to deal in gold coins, bullion and silver.
768
Ibid
 189

the bank notes Act, 1826, under which other banks were precluded from issuing notes for
less than $5769. The bank‘s supervisory function – its role as a central bank developed at a
later date. Bank‘s indirect control of the banking system was based on its ability to
influence interest rates by applying them to the accounts maintained with it. The
emergence of the powerful joint stock banks during the last two decades of the 19th
century prevented the bank of England from effectively exercising Defacto control it had
been able to impose on the banking network earlier770. The maintenance of substantial
margins with the bank of England began between 1913and 1914. In terms of structure,
the bank remained largely unchanged until 1946 when it was nationalized by the
government. In the year 1946 the bank of England‘s stock was transferred from the then
owners to the treasury solicitor. Bank of England is now a government institution but
operates independently of the government771. Then came the Bank of England Act, 1946
which gave the general powers to make requests or recommendations to banks and if
authorized by the treasury, to issue directions. The Banking Acts of 1979 and 1987
imposed on the bank not only the power but also the duty to supervise the banks
authorized by it to carry on a deposit taking business in the United Kingdom. The
Banking Act, 1979 and 1987 was the first Act to deal comprehensively with the licensing
of institutions entitled to accept deposit from the public. It was superseded by the
Banking Act of 1987. The Banking Act,1979 divided the deposit taking institutions into
four groups (a) Bank of England ( b) Recognized banks ( c) licensed institutions
described as ‗licensed deposit takers‘ and ( d) institutions listed in schedule 1 to the Act
such as building Societies and the central banks of EC member countries, which were
entitled to accept the deposit from the public without securing a license or authorization.
With the collapse of Johnson Matthey Bank, the question of bank supervision was

769
Frederick Huth Jackson, ‗The Bank of England‘, 59 The Journal of the Royal Society of Arts (1911) available at
http://www.jstor.org/stable/10.2307/41339779?Search=yes&resultItemClick=true&searchText=%22Bank%20of%20E
ngland%22&searchUri=%2Faction%2FdoBasicSearch%3FQuery%3D%2522%2BBank%2Bof%2BEngland%2522%2
6amp%3Bacc%3Don%26amp%3Bwc%3Don%26amp%3Bfc%3Doff

770
E.P.Ellinger, Eva Lomnicka and Richard Hooley , ―Ellinger‘s Modern Banking Law‖4th Edn,(2009) Oxford
University Press p.31
771
Ibid.,
 190

reviewed by a committee set up by the chancellor of exchequer in December 1984 and

chaired by the governed of the Bank of England. In the UK, the Bank of England Act
1998 transferred the Bank of England's former banking supervision functions to the
Financial Services Authority (FSA). Prior to the enactment of it, the legal pedigree for
powers of the Bank to conduct financial services supervision rested not only in
provisions of the Banking Act 1987, but also in section 101(4) of the Building Societies
Act 1986, and in provisions of the Banking Coordination (Second Council Directive)
Regulations 1992. Under these laws, the core purposes and strategy of the Bank of
England included monetary stability, monetary analysis, monetary operations, banking
activities, financial stability, supervision, and surveillance. Though, FSA has acquired
the powers to supervise banks, listed money market institutions, and related clearing
houses as the single financial services regulator772, it could not withstand the financial
crisis between 2008-09. Parliament of UK enacted Financial Services Act,2012773 and
Financial Services( Banking) Reforms Act,2013 with the objective of strengthening
Financial supervision in UK. Financial Services Act, 2012 774 established two new
statutory bodies replacing the Financial Services Authority (FSA). They are Financial
Conduct Authority (FCA) and Prudential Regulatory Authority (PRA). These two
authorities work under the guidance of Bank of England. The literature on FSMA reveals
that the market failure led to the need for recognizing an authority to regulate the
Financial Services in UK. The main objects of the FSMA are to ensure market
confidence, financial stability, and public awareness, protection of consumers and
reduction of financial crimes. Part VII of FSMA, 2000 deals with the law and procedure
governing transfer of Banking Business.

772
Carlos Conceio , ‗ The FSA‘s A approach to taking action against market approach‘ 2007 Company Lawyer 45
,28(3).
773
Main features of FSA,2012 and Financial Services (Banking )Reforms Act,2013 is discussed in detail under 6.1A in
Chapter VI of this study.
774
Introductory note to the Act states that It is an ―An Act to amend the Bank of England Act 1998, the Financial
Services and Markets Act 2000 and the Banking Act 2009; to make other provision about financial services and
markets; to make provision about the exercise of certain statutory functions relating to building societies, friendly
societies and other mutual societies; to amend section 785 of the Companies Act 2006; to make provision enabling the
Director of Savings to provide services to other public bodies; and for connected purposes‖
 191

6.3 Financial Service Regulation Reforms in UK- An Overview

The UK financial Service Industry constitutes a significant component of its economy. It

is composed of three main sectors; Banking, Insurance and investment business. The
regulatory framework for UK financial services, which had developed over the course of
the 20th century, was complex and fragmented775. There were multiple regulators, often
more than one for each of the three sectors of the industry. The governing legislations and
regulatory requirements were embodied in multifarious statutes, delegated instruments,
codes and rule books776. The Bank of England, the UK‘s Central bank was stripped of
its role as a banking regulator by the Bank of England Act 1998, and was formalized
under the Financial Services and Markets Act 2000(FSMA)777. However, The Financial
Crisis of 2008 and 2009 had an adverse impact on UK‘s economy. In order to ensure
that the financial service sector manage and control the risks more effectively, United
Kingdom enacted The Financial Service Act, 2012778(hereinafter FSA) which came into
force on 1 April 2013.This Act has not repealed Financial Services and Markets
Act,2000( hereinafter FSMA,2000). But has brought certain changes to the regulations
governing banking and financial sector under the FSMA, 2000. Originally, FSMA,
2000 recognized a tripartite779 system that governed the banking and financial sector.
During financial crisis Financial Service Authority (FSA) proved to be inefficient and
therefore have been abolished. The principal change introduced by FSA 2012 was to
establish the Financial Conduct Authority( FCA)780 and Prudential Regulatory Authority

775
Gerard Mc Meel, ‗ International issues in the Regulation of Financial advice: A United Kingdom perspective- The
retail distribution review and the ban on commission payments to Financial intermediaries‘ 87 St. John‘s Law Review
595(2013)
776
Id.,
777
Ibid.,
778
Introductory note to the Act states that It is an ―An Act to amend the Bank of England Act 1998, the Financial
Services and Markets Act 2000 and the Banking Act 2009; to make other provision about financial services and
markets; to make provision about the exercise of certain statutory functions relating to building societies, friendly
societies and other mutual societies; to amend section 785 of the Companies Act 2006; to make provision enabling the
Director of Savings to provide services to other public bodies; and for connected purposes‖ .
779
Treasury, Bank of England and Financial Service authority (FSA).
780
The objective of the FCA is to ensure that business across the financial services industry and markets is conducted
in a manner that furthers the interests of market participants and consumers.
 192

(PRA) as the statutory successor of the FSA and to give each new regulator separate but
partially overlapping statutory functions and objectives under FSMA,2000781.

FSA, 2012 brought certain changes which are essential for the better regulation of
financial service sector in general and banks in more specific.

Notable features of Financial Services Act, 2012:

1. Bank of England 782 is conferred the responsibility for the oversight of UK

Financial System as a whole.FSA, 2012 provide for the establishment of ‗Financial
Policy Committee‘ 783(hereinafter FPC) within Bank of England with the objective of
conferring the powers to monitor and respond risks784.
2. Prudential Regulation Authority785 is constituted under The Bank of England
for the purpose of supervising all firms786 that manage significant risks787 as part of
their business. The PRA 788 authorized firms are known as dual regulated firms
because in addition to the PRA regulation of prudential issues, FCA will remain as
their business conduct regulator. The general objective of the PRA is to promote the

781
Ali Malek QC & John Odgers QC , ‗Paget‘s Law of Banking‘ 14th Edn. Lexis Nexis (2015)P.4.
782
The Financial Services and Markets Act,2000 New Section 3O(1) states that ― Each regulator must take such steps
as it considers appropriate to co-operate with the Bank of England in the pursuit by the Bank of its financial stability
objective‖.
783
The Committee is charged with a primary objective of identifying, monitoring and taking action to remove or
reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The FPC has a
secondary objective to support the economic policy of the Government. Available at
http://www.bankofengland.co.uk/financialstability/Pages/fpc/default.aspx.
784
The FPC is a statutory sub-committee of Court. Its members are the Governor, three of the Deputy Governors, the
Chief Executive of the Financial Conduct Authority (FCA), the Bank‘s Executive Director for Financial Stability
Strategy and Risk, four external members appointed by the Chancellor, and a non-voting representation of the Treasury
http://www.bankofengland.co.uk/financialstability/Pages/fpc/default.aspx.
785
The PRA‘s role is defined in terms of two statutory objectives to promote the safety and soundness of these firms
and, specifically for insurers, to contribute to the securing of an appropriate degree of protection for policyholders.
786
Banks and other deposit takers, insurance companies, and large investment banks.
http://www.bankofengland.co.uk/pra/Pages/default.aspx
787
The PRA makes forward-looking judgments on the risks posed by firms to its statutory objectives. Those institutions
and issues which pose the greatest risk to the stability of the financial system is the focus of its work.
http://www.bankofengland.co.uk/pra/Pages/default.aspx
788
The Financial Services and Markets Act, 2000 (new sections 2A to 2M)
 193

safety and soundness of regulated firms. The PRA will implement policies to ensure
that firms carry on their business in a way that avoid adverse effects on the financial
system and attempt to minimize any wider effects of a firm‘s failure. PRA is
789
responsible for micro-prudential regulation of the largest firms considered
systematically important to the UK economy and market. PRA has operational
independence from the Bank of England [BoE] in respect of its day-to-day
supervision, with a focus on setting institution-specific capital requirements790.
3. Financial Conduct Authority (FCA) 791 is another notable amendment brought
through FSA, 2012 and incorporated under the FSMA, 2000. FCA is a self standing
body that would oversee the conduct of business by all regulated firms including
those prudentially regulated by the PRA792. It will also be the prudential regulator of
any financial services firm that‘s not regulated by PRA. FCA inherits the FSA‘s role
as a listing authority and will be responsible for the regulation of UK wholesale
financial markets including investment exchanges793.

The move to a new twin peaks model of a regulation794 comes with implementing laws
that require both regulators to consult each other on a number of issues, including
applications to be made by UK regulated firms 795 .Both PRA and FCA take a more
judgment based and interventionist approach to regulation. Each regulator expects to
challenge senior management business decisions – that conflict with regulatory
objectives, although they acknowledge that their own decisions may be proven wrong in
time. In short UK regulators will aim to prevent what they see as the flawed decision
making that led to financial crisis796.

789
Banks, insurance companies and investment firms.
790
UK‘s Financial Services Act- Some Key features available at http://www.mofo.com/resources/publications
791
The Financial Services and Markets Act,2000 new Section 1A to 1 O .
792
Skaden&Brandt, ‗Changing of the Guard‘32 International Financial Law Review14(2013-14) available at http
http://heinonline.org
793
Ibid.,
794
Mark Mandaby, ‗Twin peaks regime- the journey so far‘. www.clydeco.com/insight/updates/.../twin-peaks-regime-
the-journey-so-
795
Ibid.,
796
Ibid.,
 194

The Financial Services (Banking Reform) Act, 2013: In addition to the changes
brought by the Financial Services Act, 2012, The Financial Services (Banking Reform)
Act, 2013 has brought about a number of changes to the UK banking system 797.The key
one is the separation of retail banking from wholesale banking activities798. Act states
that the ‗deposit taking‘ is a core activity and core services are those which relate to
this799. Financial Services( Banking) Reform Act 2013 extends the powers of PRA and
FCA to make sure that the business of "ring fenced bodies 800, 801"is carried on in a
manner which safeguards their core banking business in the UK and which minimizes the
risk of it causing or becoming involved in systemic failure. The Treasury has the power
to extend the range of activities so defined and to determine that those holding investors‘
deposits can deal as principal in investments, and the range can be extended further
having regard to the risks involved. There is, however, a critical limitation. It can only be
done: "[I]f the Treasury are of the opinion that the making of the order is necessary or
expedient for the purpose of protecting the continuity of the provision in the United
Kingdom of core services." 802. Bank deposits are now deemed a preferential debt for
insolvency purposes up to the amount covered at the time by the Investors‘
Compensation Scheme 803 . Depositor preference will place depositors in a preferential
position over other creditors if a bank fails. This does not provide double protection as

797
Andrew Haynes , ‗The Banking Reform and the Corporate Sector‘ 2015 Company Lawyer. P.97
798
Ibid.,
799
The Financial Services(Banking Reform)Act,2013 Section1
800
Section 4 of the Financial Services (Banking Reform) Act, 2013 inserts a new part 9B into the Financial Services
and Markets Act, 2000 providing for ‗ring fencing‘.
801
The Financial Services and Markets Act, 2000, Section 142 A defines ―Ring –Fenced Body‖. 142A (1) In This
Act ring- fenced body means a UK institution which carries on one or more core activities in relation to which it has a
part 4A permission.(2) But ―ring –fenced body‖ does not include- (a) building society within the meaning of ‗Building
Societies Act,1986 or (b) a UK institution of a class exempted by order made by the treasury…….‖ Section 142B
defines ‗Core activities‘. 142B(1) Reference to this Act to a core activity are to be read in accordance with this section.
Section 142B(2)The Regulated activity of accepting deposits ( whether carried on in the United Kingdom or elsewhere
is ) a core activity unless it is carried on in circumstances specified by the treasury by order. Section 142C defines
‗Core-Services‘.
802
FSMA,200 Section 142 D
803
Financial Services(Banking Reform)Act,2013 section 13 inserted a new paragraph after 15A in Sch.6 to the
Insolvency Act,1986
 195

the depositors get back their money, up to the protected limit, but the first call will be to
take the money from the failed institution to the exclusion of other creditor rather than
government804.
Financial Market regulation is more complex in UK compare to India. In UK, FSMA
regulate Banking, Insurance and investment companies through Bank of England, PRA
and FCA. There is a need for ‗entity centric regulation‘ instead of general regulation
of Financial Services and Markets, to emphasis on the protection of depositors of banking
companies. Financial institutions provide services that are critical to the smooth
operation of the global economy and every national economy 805 . Hence, specific
regulations followed in India are an appropriate model for banking regulations. In India
each sector is given due care through the establishment of separate legislations and
regulators. For Eg, Insurance business is regulated by IRDA, Capital Market transactions
by SEBI and Banking matters by RBI. However, RBI must adopt the practice followed in
UK for the protection of ‗Core Banking Activity‘ and the concept of ‗ring fenced bodies‘.
Currently banks are permitted to engage in non-banking business connected with banking
business806 due to multifarious role being played by the banking institution. This situation
is somewhat dangerous as it may lead the banks to concentrate more on non-banking
business with the profit earned from the banking business which may lead to the failure
of banking companies. Banks are quasi trustees of public deposits and thus bound to
ensure the interest of public depositors.RBI must regulate banking and related
transactions however there can be delegated bodies under the control of RBI which can
regulate the core banking activities and non-banking activities separately. It should be
noted that bank regulation differs fundamentally from the regulations accorded in other
sectors. In other sectors primary concern is prevention of abuse of monopoly situations so
that the price is strictly regulated. In commercial banking, regulation is rarely

804
Andrew Haynes, ‗The Banking Reform and the Corporate Sector‘ 2015 Company Lawyer. P.97
805
Royce Miller, ‗Ending Too Big to Fail‘- Why Asia Pacific countries should embrace the Key Attributes‘. Capital
Markets Law Journal Vol.10(2015) P.23-40
806
Even though restrictions are provided under the Banking Regulation Act, 1949, in Section 6- Forms of business in
which banking companies may engage and Section 19 – Restriction on the nature of subsidiaries.
 196

concerned 807 with monopoly or price but is concerned rather with the depositor‘s
interest.

6.4 Part-VII of FSMA on Bank Mergers in UK: Part VII of the FSMA
introduced a new procedure808 to facilitate the transfer of banking business by
means of a scheme sanctioned under Part VII809. In certain limited respects—and
especially insofar as it provides for court sanction— in this part the legislation
draws on the structures adopted for the approval of a scheme of arrangement or
reconstruction under Part 26810 of the Companies Act 2006.

A Part VII scheme placed before the court must satisfy two essential
requirements if the court is to have jurisdiction to sanction it. First of
all, the business to be transferred must satisfy a 'banking business'
definition. Secondly, the transferor must satisfy certain authorization
requirements. Part VII allows the court to sanction a 'banking business
transfer scheme'. The parties must therefore establish that the
arrangements presented to the court do, in fact, qualify for this label. In
order to do so, 811 the transfer arrangements must involve a scheme
807
So far in India, no bank mergers have been disapproved solely on the basis of competition law constraints.

808
Section 104 of the FSMA provides that: ―No insurance business transfer scheme or banking business transfer
It should be explained that Pt VII of
scheme is to have effect unless an order has been made in relation to it under section 111(1)‖.
the FSMA consists of ss 104-117 of that Act.

809
Proctor, ‗Bank Restructuring under the Financial Services and Markets Act‘ (2003) JIBLR471. See also Moore,
‗Banking Business Transfer Schemes under Part VII of FSMA 2000‘ (2002) 23 (7) JIBFL 353. Part VII also deals with
the transfer of insurance business. Prior to FSMA the intending purchaser of a banking business had three possible
means of completing that acquisition (:1) He could acquire the corporate entity which owned that business. There are a
number of difficulties with this approach. In particular, directors and shareholders might wish to dispose of part only of
the business contained with that entity(2) He could take an assignment of the loans, security and other contractual
rights which constitute the assets of the business, and he could undertake to perform the obligations associated with it –
principally, the repayment of customer deposits.(3) He could promote a private Act of Parliament to effect the transfer,
in terms which would override some of the difficulties noted in (2), above.

810
In UK, The companies Act, 2006 - Part-26 deals with scheme of arrangement under Ss. 894-901, Mergers under
Ss.904-918A, Division under Ss.919-931.
811 see FSMA, s 106.
 197

‗under which the whole or part of the business to be transferred

includes the accepting of deposits‘. In some respects it defines the
extent of the court's jurisdiction to sanction a business transfer. In
particular:

a) The business to be transferred must include the acceptance of deposits.

This seems to imply that the activities to be transferred involve the taking
of deposits as an integral part of the business.

b) The reference to the whole or part of the transferred business consisting

of the acceptance of deposits reflects the obvious point that the
acceptance of deposits cannot constitute a business on its own. It must be
part of a wider business involving the making of loans or some other
means by which the deposits are turned to account.

c) Whilst the transferred business must therefore include deposit taking,

this should be seen as a qualifying, rather than a limiting, criterion. The
court will also have jurisdiction to order the transfer of the wider
activities, provided that they can properly be described as 'banking
business'. Consequently, the court could order the transfer to the
transferee of (i) the obligation to repay the deposits, (ii) the benefit of
the loan book and associated security, and (iii) the benefit of any asset
management agreements, documentary credits, or any other, similar
arrangements with the customers of the bank. Ultimately, of course, the
scheme placed before the court should define the business to be
transferred, and the court will have to determine whether all of the
business so described constitutes 'banking business' within the
framework of its jurisdiction. It is to be anticipated that the court will
take a broad view of the expression812. As noted above, the transferor

812
The court seems to have adopted such an approach in Re WASA International Insurance Co [20021 EWHC
2698. It should be noted in passing that Pt VII does not allow the court to sanction business transfers which would
be more appropriately handled under legislation on building societies or credit unions, or which constitutes the
merger or division of a public company under Pt 27 of the Companies Act 2006: see FSMA, s 106(3).
 198

must also meet certain authorization requirements laid down by section

106813. Where the scheme is proposed by a UK authorized person as
transferor, then courts in the UK can sanction the transfer of the
business even though the transferee may intend to continue the business
abroad. This may not be as unlikely as it sounds; where the customers
of the business are spread around the world, they may not be very
concerned if their accounts are to be transferred to another part of the
banking group in another part of the globe.814 Accordingly, where the
transferor is a UK authorized person, the court may sanction the
business transfer even though it will subsequently be carried on abroad.
A more limited approach is adopted where the transferor is a `foreign
institution. In such case, the court's jurisdiction is essentially territorial;
it can only sanction the transfer of the business if it is currently carried
on in this country and the transferee intends to continue in that fashion.
It would plainly be inappropriate for an English court to claim
jurisdiction over a transfer by a foreign company of its overseas
business.

Procedure under Part-VII Scheme: First of all, the application to court to

sanction the scheme must be advertised in the London, Edinburgh, and

813
The transferor must be a `UK authorized person‘, that is to say, an entity formed, an entity formed in the United
Kingdom and which is authorized by the FSA to accept deposits - See the definition in FSMA, s 106(5). In such a
case, the transferee must intend to carry on that business either in the United Kingdom or elsewhere. In such a case, the
deposit-taking business must be carried on in the United Kingdom, and the transferee must intend to continue the
business in the UK.

Alternatively, the transferor must be a person who has permission to accept deposits in this country but who is not
authorized to do so by the FSA. In other words, the transferor must be an EC credit institution which has exercised its
rights to carry on business in the United Kingdom, principally under the supervision of its home State regulator.

814
In this context, it should be noted that a banking business is carried on in the United Kingdom if it is
managed from the UK and the accounts are maintained in the UK. This conclusion is not affected by the fact
that many or most of the customers may be resident elsewhere.
 199

Belfast Gazettes and in two daily newspapers in the United Kingdom. 815
This provides an opportunity to depositors and other customers to obtain a
statement setting out the terms and effect of the scheme.816 These materials
will enable them to decide whether exercise their statutory right of
objection to the scheme 817 . Secondly, it must be demonstrated that the
transferee institution has adequate financial resources818. Since it would be
difficult for the court to make such an assessment, the requirement is
satisfied by the production of an appropriate certificate from the authority
responsible for the supervision of the transferee's business. In the case of a
transferee which is a UK authorized institution, this will be the FSA; a
transferee from another EU Member State must produce the certificate
from its home State regulator; and in any other case, the certificate must be

815
The form of the notice must be approved in advance by the FSA: see art 5(3) of the Financial
Services and Markets Act 2000 (Control of Business Transfers) (Requirements on Applicants)
Regulations 2001 (SI 2001/3625). Although not expressly stated, it is assumed that the FSA would not
approve the notice unless (i) it states the date and place of the hearing set for the application and (ii)
refers to the right of interested parties to appear at, and object to, the application under FSMA, s 110.

816
On the requirement to prepare such a statement, see art 5(4) of the Financial Services and Markets
Act 2000 (Control of Business Transfers) (Requirements on Applicants) Regulations 2001 (SI
2001/3625).

817
FSMA, s 110 allows for participation in the hearings by (i) the FSA and (ii) any person
claiming to be adversely affected by the scheme (including employees of the transferor or the
transferee). In practice, it must be unlikely that depositors or other customers will exercise their right to
object to a banking business transfer scheme. A disaffected depositor can simply withdraw his money
and place it with another institution. A borrower is unlikely to be affected since he is a debtor, rather
than a creditor, of the bank.

818
Although the legislation does not specifically so state, this must mean that the transferee will have
adequate financial resources immediately following the transfer, takin g account of the additional assets
thereby acquired and the additional liabilities thereby assumed.
 200

issued by the supervisor in the jurisdiction in which the transferee's head

office is situate819.

Thirdly, it must be shown that the transferee has the necessary authorization to
carry on the business in the jurisdiction to which it is to be transferred; 820
plainly, it would be inappropriate for the court to sanction the transfer if this
would result in the conduct of unlawful banking business in the country
concerned. The best evidence will be copies of the relevant licenses themselves,
accompanied by any appropriate legal opinions. Finally, the court must make a
more general assessment; it may only sanction the scheme if, in all the
circumstances, it considers that it is appropriate to do so 821 . Once the Court
sanctions the scheme, it shall come into effect822.

The Major differences between bank mergers in UK and India are that
Firstly, in UK, Part VII of FSMA is the law applicable for bank mergers and
FSA is the regulator of the same. But FSA has no power to sanction a scheme so
as to make it statutorily binding on all the parties to the transaction. In UK, Part
VII transfers or scheme under FSMA is applicable to commercial banking
companies irrespective of their constitution and structure.

Whereas in India, though there are various types of banking companies

governed by special statutes a scheme of arrangement between a
banking company and creditors can be sanctioned by the High court
only if it is certified by the RBI that the scheme is not detrimental to
the interest of the depositors of such banking company823. The High
Court‘s sanction is limited only for the purpose of a scheme of

819
On these requirements, see FSMA, s 111(2)(a) read together with Pt II of Sch 12 to the Act. It
should be noted that additional notice requirements apply where the transferee is authorized in another
Member State.

820
FSMA, section 111 (2)(b).

821
FSMA, Section 111(3).
822
It corresponds to S.230-234 of the Companies Act,2013 in India.
823
Section 44B of the Banking Regulation Act,1949(India)
 201

arrangement or compromise between the banking company and its

creditors and its members. But for the mergers or acquisition the
permission of the High Court is not required.RBI is the sole authority to
approve the same irrespective of the nature of banking company.

Secondly, in UK, under the FSMA, the Court not only sanctions the scheme of
arrangement but also the business transfers and acquisition of banking
companies. The role of FSA is silent during Part VII a transaction under FSMA.
India the power to approve the merger is with RBI. But if the merger is between
a banking company and a non-banking financial company the court get the
power to sanction the same.

6.5 Regulation of Bank Mergers in Australia: Australia has a complex array

of laws that govern and influence the conduct of banking practice, including
remarkably significant barriers to entry limit the number of banks able to be
established within Australia and in turn limits the competitive forces that might
otherwise exist as between an increased number of banks offering services824.

Australian Bank merger Policy: Globalization and the entry of new players
have caused many existing participants in the Australian financial services
industry to adopt new strategies to gain competitive advantage 825 . These
strategies include moves to provide new types of financial products as well as
outsourcing to and entering into alliance with, technology service
providers 826 .Till recently a narrow approach was followed by the Australian
Government towards bank mergers827. It prohibited mergers among Australia‘s

824
―Inquiry into aspects bank mergers‖ Committee Report submitted by Senate Standing committee on
Economics,Australia.www.aph.gov.au/senate/committee/economics_ctte/bank_mergers_08/submissions/sublist.htm.
Accessed on 5/12/2009
825
Michael Falk, ―Australia: Banking Regulation- Code of Banking Practice‖ 2002 Journal of International Banking
Law 76
826
Dave Poddar, ―Australian Bank Merger Policy : A restraint on efficiency? 1998 Journal of International Banking
Law 294
827
Francesea Rush, ― Proposed Reforms to the Australian Banking Act‖ 1998 International Banking and Financial
Law‖ 29
 202

four largest banks i.e. National Australia Bank Ltd, Common Wealth Bank of
Australia, Westpac Banking Corporation and Newzealand Banking and the AMP
and National Mutual Holdings Ltd828. The Government‘s reasoning was that it
believed that there was insufficient competition in the Australian banking sector.
Nevertheless it is in favour of approving the acquisition of Australian bank by a
foreign bank829. Australia‘s big four banks830dominate the Australian Banking
sector holding 73% of the national banking market. These major banks are a
result of a series of bank mergers over the past 150 years, however there are
concerns that any greater concentration of the sector, especially as a result of
acquisitions of second –tier banks by any of the big four, will result with less
consumer choice, reduced competition and job losses 831 .Since late 1990‘s
Australia‘s banking system has operated according to the ― Four Pillar Policy‖
the purpose of the same is that there should be no fewer than four major banks to
maintain appropriate levels of competition in the banking sector and

Regulation of Australian Banks: The activities of the Australian banks are

supervised and controlled by the Reserve Bank of Australia, within a frame
work of statutory and policy- based rules and guidelines. Responsibility for the
supervision of Australian Banks rests with the Reserve Bank of Australia
(RBA), established by the Reserve Bank Act, 1959. The RBA 832 is the offspring
of The Commonwealth Bank of Australia, which was created by the Act of
Parliament in 1911.The commonwealth bank operated both as commercial bank
and as central bank until, 1959, when its central banking activities were split
out into a separate institution renamed the Reserve Bank of Australia833.

828
Ibid.,
829
Mallesons Stephen Jacques, ― International Survey of financial markets law and regulation: Australia‖ 2001
Journal of International Financial Markets 135
830
The common wealth bank, Westpac, ANZ and National Australia Bank Ltd,
831
Nick Xenophon( Independent senator for Australia), ―Bank mergers in Australia‖ available at
http://www.aph.gov.au/senate/committee/economics_ctte/bank_merger_08/report/do2.html
832
The Reserve Bank is appointed the central bank of Australia, acts as a banker and financial agent to the federal
government and some state and territory governments, and manages the federal government‘s notes and coin issues.
833
Heather Gray, ―Supervision of Australian Banks‖ 1986 Journal of International Banking Law 119.
 203

The Role of Reserve Bank of Australia: The legislative framework governing

activities of the Reserve Banks consist of the Reserve Bank Act, The Banking
Act (Commonwealth 1959), the Financial Corporations Act(
Commonwealth,1974) and the regulations made pursuant to these Acts. The
Financial Corporations Act gives powers to the Reserve Bank in relation to non-
bank-financial corporations, such as merchant banks, enabling financial
information to be collected regarding their activities. The RBA Act and the
Banking Act constitute the source of the Reserve Bank‘s powers and duties
regarding banks. It exercises a de-facto supervisory role substantially in
834
excess of its apparent statutory basis .It should be noted that the Reserve Bank
is not a department of the Government. It is required to inform the Government
of the monetary and banking policy it has determined. members of the Reserve
Bank Board are appointed by the Governor-General (who acts on the
recommendation of the Government), and the Reserve Bank is required to report
annually to the Parliament .Section 11 of the Reserve Bank Act sets out a
procedure to be followed in the event of a difference of opinion between the
Government and the Reserve Bank Board. In that event, the Governor-General
(acting with the advice of the Federal Executive Council) may determine the
Bank's policy, and the Government will accept responsibility for its adoption. In
practice, there is a close relationship between the Government and the Board of

834
Section 10(2) of the Reserve Bank Act provides that: It is the duty of the [Reserve Bank] Board, within the limits of
its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the
people of Australia and that the powers of the Bank under this Act, the Banking Act 1959 and the regulations under that
Act are exercised in such a manner as, in the opinion of the Board, will best contribute to --

(a) the stability of the currency of Australia;

(b) the maintenance of full employment in Australia; and

(c) the economic prosperity and welfare of the people of Australia.

This duty is coupled with a more specific responsibility contained in Division 2 of the Banking Act: ‗It is the duty of
the Reserve Bank to exercise its powers and functions under this Division for the protection of the depositors of the
several banks
 204

the Reserve Bank, with the Government having ultimate responsibility for
monetary policy.

Regulation of Bank Mergers: In Australia under the Banking Act, 1959, only
the Reserve Bank of Australia and bodies corporate that are ADI‘s
(Authorized Deposit taking Institution) are treated as banks835 for the purpose of
the said Act and no other entities shall carry on banking business836. Australian
Prudential Regulatory Authority (APRA) is the body vested with the power to
authorize an entity to carry on banking business in Australia837. Section 38- A
read with Schedule 1 of the Banking Act, 1959 deals with ADI (Authorized
Deposit taking Institutions) merger. The Act states that the State and Territory
Laws will be applicable for the merger of banking companies situated in those

835
Sec -9 of the Australian Corporations Act,2001 deals with general definitions- It defines an ADI as Australian
ADI means:

(a) an ADI (authorized deposit-taking institution) within the meaning of the Banking Act 1959; and

(b) a person who carries on State banking within the meaning of paragraph 51(xiii) of the Constitution .Australian
bank means an Australian ADI that is permitted under section 66 of the Banking Act 1959 to assume or use:(a) the
word bank, banker or banking; or(b) any other word (whether or not in English) that is of like

Import to a word referred to in paragraph (a).

836
Section 8 of the Banking Act,1959 –Australia Only the Reserve Bank and bodies corporate that are ADIs may
carry on banking business
(1) A body corporate is guilty of an offence if:
(a) the body corporate carries on any banking business in Australia; and
(b) the body corporate is not the Reserve Bank; and
(c) the body corporate is not an ADI; and
(d) there is no determination in force under section 11 that this subsection does not apply to the body
corporate.
Penalty: 200 penalty units.

837
Section 9 read with Section 66 of the Banking Act,1959- Section 9 gives power to APRA to authorize the company
to carry on banking business. Section 66 deals with written consent from the APRA for a company to carry banking
business
 205

States and Territories838. Section 5G(8)of The Australian Corporations Act,2001

expressly states that the provisions of the said Act have no application to

838
Section 38A read with Schedule –I of the Banking Act,1959(Australia)- Section 38- Operation of certain State
and Territory laws relating to ADI mergers
(1) Any law of the Commonwealth with which a provision of a law of a State or Territory referred to in
Schedule 1 would, but for this subsection, be inconsistent has effect subject to that provision, or shall be deemed to
have had effect subject to that provision, as the case may be, on and from the day that is the prescribed day in relation
to that provision.
(2) Without prejudice to its effect apart from this subsection, each provision of a law of a State or Territory
referred to in Schedule 1 has or shall be deemed to have had, as the case may be, by force of this subsection, on and
from the day that is the prescribed day in relation to that provision, the effect that it would have, or would have had, if
that law bound the Crown in right of the Commonwealth, of the Australian Capital Territory, of the Northern Territory
and of Norfolk Island.
(3) If, at any time after the commencement of this Part, a law of a State or Territory is passed or made for the
purpose of, or for the purpose of making provision consequent upon or in relation to, the merger of 2 or more ADIs, the
Treasurer may, in his or her discretion, by signed writing published in the Gazette , declare that law to be a law to
which this subsection applies.
(4) Where a declaration is made under subsection (3) in relation to a law of a State or Territory:
(a) any law of the Commonwealth with which a provision of that law of a State or Territory would, but
for this paragraph, be inconsistent has effect, subject to that provision, or shall be deemed to have had effect subject to
that provision, as the case may be, on and from the day that is the prescribed day in relation to that provision; and
(b) without prejudice to its effect apart from this paragraph, each provision of that law of a State or
Territory has, or shall be deemed to have had, as the case may be, by force of this paragraph, on and from the day that
is the prescribed day in relation to that provision, the effect that it would have, or would have had, if that law bound the
Crown in right of the Commonwealth, of the Australian Capital Territory, of the Northern Territory and of Norfolk
Island.
(5) A reference in this section to the prescribed day in relation to a provision of a law of a State or Territory is
a reference to the day on which that provision comes or came into operation.
Schedule -1 of the Banking Act ,1959 states that the following State and Territory Laws for merger of ADIs.
The Commercial Bank of Australia Limited (Merger) Act, 1982 of New South Wales

The Commercial Banking Company of Sydney Limited (Merger) Act, 1982 of New

South Wales

The Commercial Bank of Australia Limited (Merger) Act 1982 of Victoria

The Commercial Banking Company of Sydney Limited (Merger) Act 1982 of Victoria
Commercial Bank of Australia Limited Merger Act 1982 of Queensland
Commercial Banking Company of Sydney Limited Merger Act 1982 of Queensland
The Commercial Bank of Australia Limited (Merger) Act, 1982 of South Australia
The Commercial Banking Company of Sydney Limited (Merger) Act, 1982 of South
 206

scheme of arrangement, winding up and receivership and the law to be applied

for the said purposes are the State and Territory Laws. The following legislation
governs the bank merger in States and Territories. The Commercial Bank of
Australia Limited (Merger) Act, 1982 of New South Wales, The Commercial
Banking Company of Sydney Limited (Merger) Act, 1982 of New South Wales,
The Commercial Bank of Australia Limited (Merger) Act 1982 of Victoria, The
Commercial Banking Company of Sydney Limited (Merger) Act 1982 of
Victoria, Commercial Bank of Australia Limited Merger Act 1982 of
Queensland, Commercial Banking Company of Sydney Limited Merger Act
1982 of Queensland, The Commercial Bank of Australia Limited (Merger) Act,
1982 of South Australia, The Commercial Banking Company of Sydney Limited
(Merger) Act, 1982 of South Australia, The Commercial Bank of Australia
Limited (Merger) Act 1982 of Western Australia, The Commercial Banking
Company of Sydney Limited (Merger) Act 1982 of Western Australia,
Commercial Bank of Australia Limited (Merger) Act 1982 of Tasmania.

Commercial Banking Company of Sydney Limited (Merger) Act 1982 of

Tasmania, Commercial Bank of Australia Limited (Merger) Act 1982 of the
Northern Territory .The Commercial Banking Company of Sydney Limited
(Merger) Act 1982 of the Northern Territory, The Commercial Bank of Australia
Limited (Merger) Ordinance 1982 of the Australian Capital Territory, The

Australia
The Commercial Bank of Australia Limited (Merger) Act 1982 of Western Australia
The Commercial Banking Company of Sydney Limited (Merger) Act 1982 of Western
Australia
Commercial Bank of Australia Limited (Merger) Act 1982 of Tasmania
Commercial Banking Company of Sydney Limited (Merger) Act 1982 of Tasmania
The Commercial Bank of Australia Limited (Merger) Act 1982 of the Northern Territory
The Commercial Banking Company of Sydney Limited (Merger) Act 1982 of the
Northern Territory
The Commercial Bank of Australia Limited (Merger) Ordinance 1982 of the Australian
Capital Territory
The Commercial Banking Company of Sydney Limited (Merger) Ordinance 1982 of the
Australian Capital Territory
 207

Commercial Banking Company of Sydney Limited (Merger) Ordinance 1982 of

the Australian Capital Territory. Legislations prescribe the procedure for
transferring the banking business from transferor bank to the transferee bank
along with other rights and liabilities of the transferor. All the said legislations
deal with fair treatment to the employees during mergers.

The Bank Merger Act, 1997 of Western Australia states that the power
to initiate the merger between two or more banking companies is
vested with the governor of the state. But the same need to be approved
by the treasurer839.A certificate issued by the treasurer is a conclusive
proof before all courts and tribunal of the merger under the Act840. Bank
mergers in Australia are completely controlled by the states through
the enactment of specific legislations for the same. Bank mergers are,
therefore, subject not only to prudential requirements but are also
considered in the wider context of 'the national interest', and are
subject to a 'public interest' test. There is no indication in the Banking
Act as to what constitutes 'the national interest'841.The court has no role
to play in the merger of banking companies. Bank mergers are also
subject to Australian Trade Practices Act, 1974 which is aimed at
preventing concentrations at the Australian Banking Sector.

6.6 Bank Mergers and Acquisitions in Singapore: Bank Merger is usually

understood in Singapore as a coming together of two or more companies through
one acquiring control of another, ie takeover842. There is no fusion of companies
dealt neither under the Singapore companies Act nor under the Banking Act,
1971.

839
Ss.6,7 & 8 read with Section 17 of The Bank Merger Act,1997 applicable to Western Australia
840
Section 19 of the Bank Merger Act,1997 ( Western Australia)
841
Leela Cejnar, ―Bank mergers in Australia: The Past, The Present and the possible future impact of globalization‖ 13
International trade and Business Law Review 242(2010) available at www.heinonline.org.
842
Wee Meng Sang,Professor National University of Singapore, ―Amalgamation- New Method to merge and takeover
of companies‖ 20 Singapore Academy of Law Journal(SACLJ) 135(2008) Available at http://heinonline.org
 208

Banks in Asia are not as profitable as they once were. As a result many are
considering for mergers and acquisitions as a solution 843 .Singapore has
generally sought to provide a welcoming environment to banks and financial
Institutions. At the same time, it views strong supervision and regulation844 as a
key pillar of such an environment, being essential to creating a stable financial
system 845 .As a well-known international financial hub, there are over 125 846
commercial banks in Singapore, including 5 local banks, 120 foreign banks.
Since the liberalization of the banking sector by the Singapore government in
2001, local banks underwent mergers and acquisitions in order to compete with
the foreign banks847.Banking business in Singapore is regulated by the Banking
Act, 1971 848 and Monetary Authority of Singapore Act, 1970. Monetary
Authority of Singapore (MAS 849 ) enjoys defacto control over the banking
companies in Singapore850 dejure control is by the Ministry of finance of

843
Philip Gilligan & John Banks, ― Bank Mergers and Restructuring in Asia‖ Available at www.lovells.com
844
Ibid., Banks are primarily governed by the Banking Act (―BA‖) and its subsidiary legislation, as well as the various
notices, circulars, and guidelines issued by the MAS. Banks that provide investment banking and financial advice
services would also be subject to the requirements of the Securities and Futures Act (―SFA‖) and the Financial
Advisers Act (―FAA‖). Banks incorporated in Singapore are required to comply with the requirements of the Banking
(Corporate Governance) Regulations 2005 (―CG Regulations‖). They are also required to comply on a comply-or-
disclose basis with the MAS‘s Guidelines on Corporate Governance for Banks, Financial Holding Companies and
Direct Insurers which are incorporated in Singapore (―CG Guidelines‖).The CG Regulations and the CG Guidelines do
not apply to banks that operate as branches in Singapore. Banks incorporated in Singapore that are also listed on the
Singapore Exchange may, as listed companies, also be required to comply, on a comply-or-disclose basis, with the
requirements of the Code of Corporate Governance 2012, in respect of their annual reports for fi nancial years
commencing after 1 November 2012.
845
Rachel Kent(Ed.,) Banking Regulations, Global Legal Group( Singapore) Ist Edn., available at www.google.com
846
https://secure.mas.gov.sg/fid/. Also see Annexure-1, List of Banks Regulated by MAS(Monetary Authority of
Singapore).
847
―Money Never Sleeps- A brief History of Banking in Singapore‖
http://remembersingapore.wordpress.com/2011/10/07/money-never-sleeps-a-brief-history-of-banking-in-sg/
848
Jaggit Kaur Metook, ― A Survey of Banking Laws and Policies in Hongkong and Singapore‖ 1986 Birmingham
Young University Law Review 835(1986) available at http:heineonline.org
849

850
Ravi Chandra, ―Banking Law Reforms in Singapore” 28 International Business Law 31(2000) available at
http:heineonline.org
 209

Singapore Government851. In Singapore, Commercial banks in Singapore fall

into the following categories: full license banks852, restricted license banks853,
and offshore license banks854. These three are regulated by the Banking Act of
1971.Banks may also do business through representative offices 855 or as
merchant banks856. Merchant banks are regulated by the Companies Act1967857.

851
Jaggit Kaur Metook, ― A Survey of Banking Laws and Policies in Hongkong and Singapore‖ 1986 Birmingham
Young University Law Review 835(1986) available at http:heineonline.org
852
Full license bank:. Banks with full license for commercial banking are authorized to transact all banking activity in
Singapore, both domestic and foreign. Thus, they are authorized to operate current accounts, savings and fixed deposit
accounts, commercial letters of credit, and trust receipts. In addition, they may finance exports and imports, transfer
funds, and purchase and sell traveler's checks and currencies. Full license banks may give advice on trade, investment,
and foreign exchange regulations, and may furnish credit reports. Many of the full license banks have also been granted
Asian Currency Unit licenses to participate in the Asian Currency Market. Thirteen domestically incorporated full
license banks and twenty-four foreign full license banks existed in 1982. The consensus is that MAS will not grant
additional full licenses in the foreseeable future absent exceptional circumstances.

853
Restricted license bank: Prior to 1971, the only bank license available in Singapore was the full license. To attract
more licensed banks to Singapore, the restricted license was developed and implemented in 1971. Thirteen banks had
not been granted restricted licenses as of 1982.These banks may engage in the entire range of banking business except
they are not permitted to accept time deposits of less than S $250,000, nor have savings accounts. They are also
restricted to one location in Singapore. They may be authorized in the foreign exchange market and may be licensed as
Asian Currency Units."Restricted license banks have been very active in the Singapore market. Most are oriented
toward wholesale corporate banking, rather than personal banking.
854
Offshore license banks. In 1974, MAS introduced the offshore license to the Singapore market. When first
introduced, offshore license banks were restricted to business outside Singapore. They were authorized to deal in
foreign exchange and operate
Asian Currency Units, but could not offer account facilities. In 1978 the restrictions on offshore banks were relaxed and
offshore banks can now offer credit and other facilities to Singapore
residents. The only limit is the maximum amount of S$30 million on credit to any Singapore resident without MAS
approval. Offshore banks can now effectively compete in the domestic
Banking market including current account, overdraft trust receipt, and letters of credit facilities. Fifty offshore banks
existed in Singapore in 1982.
855
Representative offices. Foreign banks may also do business in Singapore through representative offices. These
offices are limited to promoting foreign bank business and providing the foreign bank with Singapore market
information. Many banks open representative offices and intend to apply for an offshore.
License if business warrants.
856
Merchant banks. Merchant banks engage in finance, investment, assets, mergers of corporations, and other related
transactions. They are allowed to accept deposits only from banks and finance companies, and are not allowed to deal
in foreign exchange or Asian Currency Units without MAS approval. Most merchant banks in Singapore operate as
 210

Sections 215A to 215J of the Companies Act, 1967 858 deals with the
amalgamation or merger of Singapore companies. Commercial banks are the
most important financial institutions in Singapore 859 .Since 2000; Singapore
860
Government had introduced major reforms in the banking sector by
encouraging more competitions by means of mergers and consolidation 861
among foreign banks and among the local banks862.

joint ventures between local and foreign banks. The Companies Act of 1967 and MAS regulate the activities of
merchant banks.
857
Companies Act,1967(Singapore)
858
Wan Wai Lee, ―Effecting Compulsory Acquisition via the Amalgamation Procedure in Singapore‖ 2007 Singapore
Journal of Legal Studies‖ 323.

859
Ming Hua Liu and Ashish Lal, ―Liberalization of financial and Capital markets- Singapore is almost there‖
Symposium on Capital Markets and Financial Service in Pacific Rim: Prospect for Harmonization-Published in 1997
Law and Policy in International Business 619.
860
Francis Mok, ‗Singapore: Risk based capital adequacy requirements for banks‘28(1) Journal of International
Banking Law and Regulation (2013). Available at WWW.Westlaw.org
861
Philip Gilligan and John Banks ‗Why Asian Banks are turning for M&A‟ 21 International Financial Law Review
41(2002). Authors state that merger wave among the banks of Singapore already started with OUB and UOB and
Keppel Capital holdings and OCB. Also cited in Notes: ‗Development in Banking Law- Mergers and Acquisitions
International‘ 2002 Annual Review of Banking Law 92 available at www.westlawinternational.org -The article cites
the case studies of bank mergers in some of the developed economies. From Singapore the Merger between UBO and
OUB is reproduced here- On June 22, 2001, DBS Holdings Ltd. (―DBS‖), Singapore's biggest banking group at the
time, announced a $5.16 billion unsolicited bid for the country's fourth-largest bank, Overseas Union Bank Ltd.
(―OUB‖).The takeover attempt, which would have made DBS the third-largest bank in Asia outside of Japan,
eventually failed, however, in the face of a friendly offer from Singapore's second-largest bank, United Overseas Bank
Ltd. (―UOB‖).Not only did DBS's unsuccessful bid to acquire OUB greatly embarrass the bank, the failure also caused
it to lose its number-one position in Singapore to the group formed by the UOB-OUB merger. The end result may
prove to be the creation of new competition for all Singapore banks in the years to come, since completion of the deal
between UOB and OUB increases consolidation among domestic financial institutions, a step the government has said
is necessary before foreign banks will be granted full access to Singapore markets. For UOB, the opportunity to fold
OUB into its operations was an attractive prospect promising merger synergies as well as an estimated annual cost
savings of $114 million, or about 16-20% of the combined entity's fiscal 2000 operating costs. In addition, while
negative reaction to DBS's plans to issue new shares in order to finance its bid for OUB quickly drove the bank's stock
price to a two-year low in the days immediately following the announcement of its takeover attempt, UOB was able to
fund its competing offer by issuing subordinated debt at a lower-than-expected coupon rate due to strong investor
demand for the notes. While some job losses following the merger were inevitable given the significant overlap in
operations at the two banks, analysts maintain that the cuts suggested by UOB appear excessive in light of the fact that
 211

Banking Regulations in Singapore: The Banking Act of 1971 863 , brought

Singapore‘s banking legislation together into a complete legislation. The
Ministry of Finance of Singapore is the ultimate government regulatory
authority over the banking sector. The ministry controls and administers the
banking industry through a wholly owned government corporation, the
Monetary Authority of Singapore -MAS 864 .MAS 865 is governed by the

OUB's total staff strength is only about 3,100. Furthermore, these measures come at a time when unemployment in
Singapore is rising and government officials have been urging employers to use wage reductions rather than job
eliminations to lower costs. Among the East Asian Countries Singapore has emerged as a financial centre.

862
Ibid.
863
The Act specifies the minimum capital required for all banks operating in Singapore. Banks centered in Singapore
with principal offices in the republic must have capital of S$3 million. A bank with its principal office outside
Singapore must have capital of S$6 million and must maintain at least S$3 million of head office funds in Singapore.
The Monetary Authority of Singapore (MAS) must approve the type of assets held for the minimum capital account. In
addition, MAS may require banks to maintain a minimum cash balance. MAS may vary the percentage balance to
implement its current policy regarding bank liquidity. The percentage required cannot surpass thirty percent of the
bank's indebtedness. A bank may also be required to maintain a minimum amount of liquid assets. Every licensed
bank must keep a reserve fund, but if MAS finds that the total reserve fund of a licensed bank whose principal office is
located abroad is sufficient for its transactions, it may exempt the bank from maintaining the reserve fund in Singapore.
Ref: Section 9, 34, 35&18 of the Banking Act,1971.
864
Established in 1971, MAS performs all the functions of a central bank except issuing currency, which has continued
to be under the authority of the Currency Board.MAS objectives are to act as a government banker, encourage
exchange conditions that will aid the country's economic growth, and combine the monetary and banking functions of
the commissioner of banking, the commissioner for finance companies, the accountant-general, and the controller of
foreign exchange.
865
Viv Hall, ‗Central Bank Governance: Common Elements or different models?‘ Hongkong Institute for Monetary
Research, Working Paper No.20/2003.Availabe at www.westlaw.org wherein it states that the legislated objective for
the MAS is to promote, within the context of the government‘s general economic policy, monetary stability and credit
and exchange
Conditions conducive to growth of the economy. That objective is also very broadly stated, and does not provide
immediate clarity on a specific objective for monetary policy. As a result, the ultimate goal for MAS monetary policy
has, until recently, been subject to some confusion. In particular, it has not been well understood precisely what has
been the MAS ultimate objective, and what has been its operational objective. The degree of public misunderstanding
has since been lessened through the issuing of documents entitled Singapore‘s Exchange Rate Policy and Monetary
Policy Operations in Singapore. They state (MAS, 2001, p 2; 2003, pp 12, 13) that the primary objective of monetary
policy is to promote price stability (or low inflation) as a sound basis for sustainable economic growth.
 212

866
Monetary Authority of Singapore Act of 1970 . The MAS has
compartmentalized the financial sectors through issuing licenses which allow
competition within a sub-market but not among various types of financial
institutions 867 . The MAS 868 is also responsible for the supervision of banks,
insurance companies, financial institutions, the securities and futures industry869.
As roles in financial services are converging, Singapore has consolidated its
regulatory regimes. Singapore has an integrated financial regulatory structure
comprised of the Ministry of Finance, the Monetary Authority of Singapore
(MAS), and the SDIC. ―Singapore has had a unitary regulatory authority for the
financial sector‖ ever since the establishment of the MAS as a statutory board
on January 1, 1971 under the Monetary Authority of Singapore Act of 1970870.

Legal Regime for Bank Mergers in Singapore: Though Singapore has only
five local banks871 as its own, there is a well regulated regime for all the banks
operating in Singapore. But these five banks dominate the market even in the
presence of large number of foreign banks. Bank mergers in Singapore are not
governed by the Companies Act of Singapore. Singapore government is not so
favorable towards acquisition of Singapore‘s local banks by foreign banks but
866
MAS Act was amended in 1972. The amendment allowed MAS greater powers.MAS policies are determined by a
board of directors chaired by the minister of finance. As part of its regulatory function, MAS grants licenses to
financial institutions, controls renewal of licenses, and approves operations for other types of financial institutions.
Licenses and approvals are usually granted to any institution with an international network wishing to expand in
Singapore. An institution seeking to open in Singapore may be encouraged to join local institutions in a joint venture
operation.
867
Ramin Cooper Maysami ‗Financial e-regulation in Singapore: global issues in supervision of Internet banking‘2000
Journal of International Banking Law 225.

868
Number of Financial Institutions and Relevant Organizations Regulated by Monetary Authority of Singapore (as on
27 Sep 2014.) Available at https://secure.mas.gov.sg/fid/
869
Margaret Chew, ‗Reform of Financial Services: Effect on the Regulator‘2001 Singapore Journal of International and
Comparative Law 569. Available at www.westlaw.org

870
Nu Ri Jung, ‗The Present and Future of the Financial Services Industry: Convergence, Consolidation,
Conglomeration, and Collaboration‘2011 Quinnipiac Law Review 729 .

871
Five Local Banks of Singapore are : 1) Bank of Singapore Ltd 2) DBS Ltd 3)Far Eastern Bank Ltd, 4) Overseas
Chinese Banking Corporation Ltd 5) United Overseas Bank Ltd Available at https://secure.mas.gov.sg/fid/.
 213

it provides for the presence of Singapore‘s banks in other jurisdiction. A study

conducted by Prof. Adrian E.Tschoegal872 of University of Pennsylvania states
that in a service industry such as banking, licensing is difficult because of the
intangibility of some of the assets such as relationship with home country
firms. Exporting is too difficult because unlike in the case of goods, the
production of service requires that the producer should be in contact with the
customer. Furthermore, it is frequently more cost –effective for a bank to go to
the customer‘s countries than to have customer‘s come to bank‘s home
country.873

Section 14874- 14C875 of the Banking Act, 1971 governs the mergers of
banking companies in Singapore876. Bank mergers are subject to the approval

872
Adrian E.Tschoegal, ‗International Expansion of Singapore‘s largest banks‘( Working Paper)Published by Wharton
Financial Institutions Centre, University of Pennsylvania( 2001)
873
Ibid.,
874
Section 14 of the Banking Act, 1971(Singapore) Mergers :(1) A bank incorporated in Singapore shall not be
merged or consolidated with, or be taken over by, any other body corporate or unincorporated without the prior written
approval of the Minister.
(2) The Minister may approve an application made under subsection (1) if —
(a) the Authority is satisfied that —
(i)the body corporate or unincorporated is a fit and proper person or body of persons; and
(ii)having regard to the likely influence of the body corporate or unincorporated, the business of the bank will be or will
continue to be conducted prudently and the provisions of this Act will be or will continue to be complied with in
relation to such business; and
(b) the Minister is satisfied that it is in the national interest to do so.
(2A) The parties to a proposed merger or consolidation, in respect of which an application is made under this section,
shall furnish such information as the Minister or the Authority may require for the purposes of subsection (2)
(3) Without prejudice to the generality of subsection (1), for the purposes of this section, a bank shall be deemed to be
merged with a body corporate or unincorporated if the bank or its shareholders enter into any agreement or arrangement
under which all or substantially all of the business of the bank is to be managed, and under which the shareholders of
the bank will be accorded rights, as if the bank has been merged with such body corporate or unincorporated, as the
case may be.
Approval by Minister for merger of certain banks
14A.(1) Subject to this section and section 14B, on the joint application of a bank and one or more banks which are
wholly-owned subsidiaries of that bank, the Minister may approve the merger of those banks and issue a certificate of
approval.
 214

and satisfaction of Minister877. The minister may approve the merger if it is in

the national interest and if the companies have complied with the provisions of
the banking. The decision of the minister is final and it is not subject to judicial
review878. MAS have no role in the merger of banking companies.

(2) The issue of a certificate of approval by the Minister under subsection (1) merges the banks that are parties to the
merger agreement on which the application for the certificate of approval is based.
(3) Where a certificate of approval is issued under subsection (1) merging the banks, the merger shall for all purposes
be deemed to have occurred and to be effective on the date mentioned in sub-section (4).
(4) A certificate of approval issued under subsection (1) shall have no force or effect until a copy of the certificate and
the merger agreement on which it is issued is lodged with the Registrar of Companies, and upon being so lodged the
certificate shall take effect on and from the date of lodgment.
(5) No application to the Minister for a certificate of approval merging 2 or more banks may be made under
subsection (1) unless —
(a) The merger is between a bank and one or more banks which are wholly owned subsidiaries of that bank;
(b) The banks proposing to merge have entered into a merger agreement; and
(c) The application for the certificate of approval is made within 2 weeks from the date of execution of the merger
agreement referred to in paragraph (b)
(6) Where a certificate of approval is issued under subsection (1) merging the banks, those banks shall publish a notice
of the approval of the merger at least once in a local Malay, English, Chinese and Tamil language daily newspaper
within one week from the date of the certificate of approval.
(7) For the avoidance of doubt, it is hereby declared that sections 210 and 212 of the Companies Act (Cap. 50) shall
not apply to the banks which have jointly applied for a certificate of approval under subsection
14B Condition for issue of certificate of approval: (1) The Minister shall not issue a certificate of approval under
section 14A unless the application thereof is supported by satisfactory evidence that the applicants have complied with
the requirements of that section in relation to the merger.
(2) Nothing in this Act shall be construed as precluding the Minister from refusing to issue or approve the issue of any
certificate of approval under section 14A and any decision of the Minister under that section shall be final and shall not
be called in question in any court.
14C Effect of merger: As from the date mentioned in section 14A(4), the provisions set out in the Second Schedule
shall have effect and shall apply to the banks that are parties to the merger agreement on which a certificate of approval
is issued under section 14A(1).
875
Ibid.,
876
Sections 215A to 215J of the Companies Act, 1967 facilitate the amalgamation or merger of Singapore companies.
877
Section 14(2) of the Banking Act of 1971, Singapore.
878
Section 14B(2) (2) Nothing in this Act shall be construed as precluding the Minister from refusing to issue or
approve the issue of any certificate of approval under section 14A and any decision of the Minister under that section
shall be final and shall not be called in question in any court.
 215

Though Singapore has well regulated banking system, the Banking Act regulates
not only the banks but also insurance, securities and various other businesses.
Thus MAS may not be able to focus only on the banking business. This may not
be healthy for a healthy economy where there is a need for a unified regulator
exclusively for banks.