WASHINGTON - The Fed gave Cleveland-based Keycorp and its Portland, Maine, subsidiary permission to acquire Casco Northern Bank, also of Portland.

With deposits of $2 billion, Keyccorp is the second-largest bank in Maine. Casco Northern Bank is the third largest bank in the state, with $895.5 million in deposits.

The two banks directly compete in 10 banking markets in Maine and one in New Hampshire.

The Justice Department initially objected to the deal on anti-trust grounds. But, it dropped its complaint in late December when Keycorp agreed to sell branches in seven areas in Maine.

The holding company has three months to complete the acquisition.

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