In response to David Weston's question about whether Bank of America will once again be a buyer of other banks, Moynihan noted that:
It is actually illegal for us to buy another depositary institution in the United States. Not a lot of people know that.
If you don't follow bank stocks you may find this perplexing. Why in the world would it be "illegal" for Bank of America to buy another bank?
The Riegle-Neal Act
The answer lies in the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. The purpose of this legislation was to deregulate the bank industry by allowing federally chartered banks to branch across interstate lines.
Prior to the 1980s, banks could operate only within a single state. The rationale for this dates back to the earliest days of the republic, when citizens and policymakers were concerned that the moneyed interests in New York would monopolize the bank industry, and therefore control who has access to credit.
This began to change in the 1970s and 1980s, as state-chartered banks lobbied their legislatures for the right to open branches in neighboring states. The Riegle-Neal Act was the culmination of this trend.
But even though the Riegle-Neal Act opened up the ability for federally charted banks to operate across interstate lines, it nevertheless imposed a ceiling on how large banks could get. It did so by restricting banks with more than 10% of the nation's deposits from acquiring other depositary institutions.
To Moynihan's point, this is why it's illegal for Bank of America to acquire other banks, as it already controls just under 11% of domestic deposits in the United States.
The good and bad
On one hand, this isn't a good thing. After all, one of the most effective ways for a bank to grow is through prudently priced acquisitions. It's one of the main reasons that M&T Bank has produced Warren Buffett-like returns over the past three decades.
On the other hand, Bank of America has demonstrated in the past that it lacks the institutional discipline that's required to make prudent acquisitions. Instead of waiting for a down cycle, when banks can be bought for large discounts to their book values, Bank of America has tended to pay substantial premiums for its acquisitions, as it did with its purchases of FleetBoston Financial and Chicago's LaSalle Bank.
Either way, though, it's probably safe to say that Bank of America wouldn't be in the market for an acquisition anytime soon anyhow, as it's been more focused on retreating and retrenching over the past six years as opposed to growing.