When it comes to the merger of NationsBank Corp. and BankAmerica Corp., the Federal Reserve Bank of Richmond has been ground zero.

The Richmond Fed, the reserve bank responsible for NationsBank, began reviewing the $60 billion deal three months ago, with an eye to making a recommendation to the board of governors. It is a detailed, exhaustive process, and the 12 Fed banks are honing it as the industry's merger whirl accelerates.

"The reserve banks play a very useful role in the bank merger process," said J. Alfred Broaddus Jr., president of the Richmond Fed. "We know these institutions in the district. We know the people. We truly are well positioned to add a lot of value."

The work of the regional Fed banks is conducted largely behind the scenes, but the Richmond Fed staff handling the NationsBank/BankAmerica application-which the governors are expected to approve today-agreed to be interviewed about the process.

Merger applications are keeping the regulators increasingly busy. In the 12-month period ending March 31, the Fed handled 726 mergers, up from 670 during the previous year.

The vast majority-680 in the year ending March 31-were routine matters handled by the 12 regional reserve banks. These mergers involved no novel issues, were not protested, and were approved in an average of 39 days.

The remaining cases-46 in the year ending March 31-were megamergers and other complex deals involving Community Reinvestment Act protests or bids for new powers. These cases were decided by the Fed's board of governors, though the processing was handled by both the reserve bank and the board's staff in Washington. They took an average of 55 days to process.

The NationsBank-BankAmerica deal-like Travelers Group's acquisition of Citicorp or Banc One's takeover of First Chicago NBD Corp.-is one of these complex cases, which means the Richmond Fed and the board are both examining financial and managerial, community reinvestment, competitive, and legal issues.

The legal process for creating a $570 billion asset banking company began May 15. It was forwarded to A. Linwood Gill 3d, an assistant vice president in bank supervision and regulation at the Richmond Fed. Ordinarily, he would conduct a cursory review to determine if the application should also go to the board in Washington. "With NationsBank- BankAmerica, that didn't require a review," he said. "We knew it would be complicated."

Mr. Gill assigned the case to Adam M. Drimer, one of five Richmond Fed analysts. Mr. Drimer's first task: get copies of the application to the Richmond Fed's expert on competitive issues, an in-house lawyer, the board's staff, and the Justice Department's antitrust division.

Mr. Drimer is responsible for the financial and managerial review. He began by checking past exam reports and publicly available financial data. "That is to see if there are any potential problems up front," he said. "If there is a problem, then I do more research."

Then he created pro forma financial statements-including a combined balance sheet and income statement-for the merged entities, to ensure the deal would not weaken the companies financially.

Up next were the comment letters. (More than 1,700 have been filed to date.) "We will prove or disprove what is in those letters and then see if it needs to be looked at more," he said. To accomplish that, he has conducted extensive reviews of Home Mortgage Disclosure Act data, CRA records, and consumer compliance reports for both banking companies.

These reviews take a lot of time. Mr. Drimer estimated he spent 300 hours on First Union Corp.'s recent acquisition of CoreStates Financial Corp.

At the same time, Josephine O. Hawkins, an associate economist at the Richmond Fed, analyzed each market where the two banks overlap, concentrating on the number of competitors and the percent of deposits they control.

From this data, she computed a concentration rating-known as the Herfindahl-Hirschman Index-which is arrived at by taking the sum of the square of each bank's share of deposits in each market. Any score above 1,800 or that rises by more than 200 points triggers additional scrutiny.

"If a market is concentrated we will look at other factors such as potential competition or if the firm being acquired is on the verge of failure," she said. "We call these mitigating factors because they go beyond the HHI."

Other mitigating factors include planned divestitures, the number and strength of competitors, and whether the market can support all the institutions competing there.

"We look at as many of these other factors as we can," she said. "It is not a matter of selecting one or two. It is cumulative."

The final piece of the puzzle is placed by P.A. L. Nunley, assistant counsel at the Richmond Fed, who ensures the deal does not violate the Bank Holding Company Act or similar laws. She also reviews noncompete clauses, in which bankers selling their institutions agree not to start a nearby bank. "Those must be reasonable in scope and duration," she said.

Ms. Nunley also was the Richmond Fed's representative at the public hearing held last month in San Francisco on the NationsBank deal. "We are there to make sure everyone gets heard and we get all the information we need," she said.

When Ms. Nunley and Ms. Hawkins are done, they summarize their findings in memos, which are sent to Mr. Drimer, who combines them with his work into a single document.

For a noncontroversial case, the process would end there with the reserve bank approving the deal. Megamergers, however, are also reviewed by the board's staff. Leading that process is Scott G. Alvarez, the Fed's associate general counsel.

"It is not as duplicative as it sounds," he said. "In the big cases there is a lot of work to be done. We try to work as a unified staff."

Much like at the Richmond Fed, the board divided up the application between Betsy Cross for supervisory issues, Shawn McNulty for consumer and community affairs issues, and Steve Rhodes for competitive analyses.

The bulk of the CRA reviews occur at the board, which has six analysts dedicated to this task. "Any time a case is protested on CRA grounds it is going to come in here and be something we would look at," Ms. McNulty said.

Her group often starts its work even before the application arrives, by compiling HMDA data and CRA exam reports. "We are hitting the ground running," she said. "We try to process these applications as quickly as we can."

The protests usually start rolling in a few weeks after an application is filed. "We are looking at the protests to see if ... there is any merit to them," she said. "Then we put these issues into the perspective of the bank's overall CRA record."

Ms. Cross and Mr. Rhodes conduct reviews similar to those of their counterparts in Richmond. Their analyses are compiled by Mr. Alvarez's staff into a single board memo. "The board's memo with the draft order and the reserve bank memo are put in a single package and delivered to the governors within two business days of the board meeting," Mr. Alvarez said.

Fed Governor Laurence H. Meyer said the memos are crucial.

"They contain analysis of the competitive situation and outcome, both in terms of market concentration, market share, and mitigating circumstances," he said. "I pay great attention to them."

Noncontroversial mergers are put on the board's summary agenda, which means they are approved without debate. Big cases, such as NationsBank-Bank of America, are always debated, though the meetings occur behind closed doors. The staff presents a brief report on the merger; the governors ask questions, state their positions, and then vote.

Bankers said the process is exhaustive.

"If you could see my office and the office of the legal folks, you would know this is a very intensive process," said Catherine P. Bessant, president of community reinvestment at NationsBank. "The Fed actively requests information on what we do and how we run our operation."

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