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Ask the expert: Are big banks more stable than smaller ones?

August 26, 2011

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: Changing banks is a pain in the neck, but sometimes you are forced to do that because the bank you are with got taken over. So would I be better off choosing one of the very large national banks? After all, I figure the bigger the bank, the more likely they are to be acquiring other banks, rather than getting taken over themselves.

A: While you might guess that the largest banks would be more takeover-proof than smaller banks, that isn't necessarily the case. First of all, a large bank might be the ideal strategic partner for another large bank, it they complement each other's product lines or geographic distribution.

Second, a large bank doesn't necessarily have to sell out lock, stock, and barrel. It might simply choose to divest a portion of its business. If you happen to have your money market account, checking account, or credit card with that division of the bank, then you will be affected by the transition as much as you would if the whole bank had been taken over.

For example, HSBC Bank recently agreed to sell 195 New York and Connecticut branches to First Niagara Bank. In terms of size, HSBC might have seemed more likely to be an acquirer than a seller. After all, HSBC is a multi-national institution with 498 branches in 13 states. First Niagara is a growing mid-sized player, with 364 branches in four states. However, by deciding to divest part of its branch network, HSBC will be exposing customers of those branches to a transition they didn't choose, every bit as much as if the entire bank had been sold.

The lesson is, it's hard to predict bank merger and acquisition activity. Choose your accounts based on what you can judge now--CD, savings, and money market rates, or free checking account availability--and you can only hope that ownership stays stable.

Got a financial question about savings, investing, or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page, and look for the "Ask the Expert" box on the lower left.

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