The US government dual banking regulation levels, transaction costs and HSBC's strategy in acquiring Marine Midland Banks, Inc., 1978-80

Abstract

This paper undertakes a case study of HSBC acquiring Marine Midland Banks, Inc. (MMBI) in the US between 1978 and 1980, a historic incident that had a catalytic impact on the whole debate about foreign banking in the US and re-examination of the restrictions on the US banks' inter-state operations. This paper explores the impact of the US government's financial regulatory structure on HSBC's acquisition and how HSBC dealt with difficulties caused by the US government regulations. We find that the structure of the US government financial regulation caused political hazards which further influenced HSBC's contractual hazards and business transaction costs. We have established that the different attitudes of the federal and state regulatory authorities toward HSBC's acquisition were closely related to their interests, regulatory capability and resources. Our analysis also confirms that HSBC's commitment strategy did help it to earn the federal regulatory authorities' support and MMBI's cooperation, which facilitated the conversion of Marine Midland Bank (MMB), a principal subsidiary of MMBI, to the status of a national chartered bank and allowed HSBC to circumvent the NYBD's regulation.