A branch purchase and assumption agreement (BPAA) is a contract between two banks where the purchasing bank acquires the assets and liabilities of a branch or multiple branches of another bank. This agreement is a common method for banks to expand their operations, acquire new customers, and acquire new markets.
BPAA agreements are typically confidential, and the details of the transaction are not made public. However, the purchasing bank must obtain regulatory approval to acquire a branch or branches of another bank.
When a BPAA agreement is executed, the purchasing bank acquires the assets and liabilities of the branch or branches, including loans, deposits, and other assets. This means that the purchasing bank is responsible for the liabilities of the branch, including any outstanding loans, credit lines, or other financial obligations.
The acquired assets are typically included in the purchasing bank`s financial statements, and the liabilities are assumed by the purchasing bank. The acquiring bank may also require the employees of the acquired branch or branches to transfer to the new bank.
One advantage of the BPAA is that it allows the acquiring bank to expand its operations without having to establish a new branch from scratch. This can be more cost-effective than building a new branch, hiring new staff, and acquiring new customers.
However, there are risks associated with BPAA agreements. The acquiring bank may not be able to retain all of the customers of the acquired branch, and there may be losses associated with the acquisition. Additionally, regulatory approval can be a significant hurdle in completing a BPAA agreement.
In conclusion, BPAA agreements are a common method for banks to expand their operations. While there are risks associated with these agreements, they can be a cost-effective way for banks to acquire new customers and markets.
