1.IntroductionMergers and acquisitions in the financial services sector are receiving a great deal of attention at present. The trend is toward the blurring of the boundaries that separated the various parts of the financial sector, particularly commercial banking, investment banking and insurance. More recently, we have been faced with the prospect of the formation of large financial conglomerates.The ultimate objectives of a financial services institution whether it be a bank, insurance company or securities firm, are, firstly, to be financially safe and sound; secondly, to obtain the confidence of and show fairness to the users of its financial services; and, finally, to be efficient and effective. These objectives should always be consistent with the objectives of the regulatory authorities.The objectives of the regulator are to: Ensure a safe, sound and stable financial system.Enhance the confidence of and fairness to investors, by eliminating bad business practices and ensuring healthy competition between financial institutions.Ensure an efficient and effective financial system. It follows that the strategies adopted by banks as financial services institutions and the objectives set by the regulator have to be consistent with each other. The priorities assigned to the ultimate objectives of a bank may, however, differ from those of the regulator. For instance, the bank may have as its primary ultimate objective the maximisation of shareholder value, as measured by the rate of return on equity. This would be in conflict, however, with regulatory objectives if maximisation of shareholder value were to be achieved by the taking of excessive risks.The primary objective of the Registrar of Banks and, when applicable, the Minister of Finance, therefore, should be to ensure that a merger will not be detrimental to the public interest and also not contrary to the interests of the banks concerned, their depositors or their controlling companies.We must remember that the responsibility of the directors is to act in the best interest of their shareholders and, thereby, improve or maintain the wealth of their shareholders. The interest of the public and depositors is thus not the primary concern or responsibility of the directors. It is, therefore, imperative that the Registrar of Banks and the Minister of Finance protect the interest of depositors.Our task, as regulators, is to ensure that, after a merger, acquisition, reconstruction or take-over, a bank or banking group has: Suitable shareholders.Adequate financial strength.A legal structure that is in line with the bank or banking group's operational structure.Management with sufficient expertise and integrity.We are sensitive to the fact that it is not the role of the Bank Supervision Department to judge the wisdom of management decisions and business strategies beyond ensuring that local and international best practice regarding supervision and regulation are met.Our philosophy is that market principles underlie all activities.2.    Regulatory Concerns with regard to Mergers and Take-oversThe following are regulatory concerns, because they could impact on the stability of the financial system as a whole:2.1    Contagion riskIn the case of a bank, contagion can best be described as the risk that a problem or problems in one or more associate entities contaminate the bank, leading to negative perceptions of the bank. In some cases, the implications could be so serious as to lead to the failure of the bank. As the potential for contagion increases, so, too, increases the risk of individual financial failure. Although contagion risk is extremely difficult to measure and quantify, it is a risk of which bank management constantly needs to be aware.Banks operate in a highly competitive environment, encouraged by the developments of new markets, instruments and techniques. Although many of these changes provide the means of diversifying risks, they also allow greater risks to be taken. These developments provide challenges to central banks in attaining the appropriate balance bet