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M&T, with green light to make deals, proceeds with caution

M&T Bank finally has the green light to start making deals again, after federal regulators on Thursday lifted a restriction that had been in place for four years.

But the long-awaited decision doesn't necessarily mean the Buffalo-based bank is about to embark on a buying spree.

"We won't do anything unless it enhances our ability to create value for our customers and our shareholders," said Richard S. Gold, an M&T vice chairman.

The bank spent four years and more than $400 million to bring its compliance systems up to federal expectations after regulators cited "deficiencies" in the bank's anti-money laundering and Bank Secrecy Act systems. Those systems are designed to thwart drug traffickers and terrorist financiers from exploiting the U.S. banking system.

That meant dedicating hundreds of employees to watch for signs of money laundering, and it leaves the bank with a more sophisticated system to track suspicious activity within its customers' accounts.

Federal Reserve regulators and M&T entered into a "letter of agreement" in June 2013 outlining the improvements M&T had to make, about two months after M&T disclosed the shortcomings the regulators had found.

The Federal Reserve on Thursday confirmed the bank had brought its compliance systems up to expectations.

While the lifting of that letter removes a barrier for M&T to make acquisitions, Gold said any potential deal would have to pass muster with regulators and make sense for the bank to pursue. "I don't take lightly the journey toward regulatory approval in a post-Dodd-Frank [Act] environment, and I don't take lightly the challenges that we've always faced in deal economics," said Gold, referring to the 2010 law that imposed new regulatory requirements on banks following the 2008 financial crisis.

Gold noted the bank traveled a long road to get its Hudson City Bancorp deal approved. That acquisition was announced in 2012, before the letter of agreement took effect, but wasn't completed until 2015.

When Gold was M&T's chief risk officer, before a recent promotion, he oversaw the overhaul of the bank's compliance systems.

"We had to undertake an extensive effort at reviewing literally every single customer in the bank to better understand who they were and the type of business they conducted and what purpose," Gold said.

From the time the letter of agreement took effect through the end of this year, the bank will probably have spent more than $400 million on the process, he said.

M&T also had to commit lots of employees to the effort, he said.

"There are hundreds of employees that work to investigate potential money laundering situations," Gold said. "And there are a whole bunch of people out in the business lines that have responsibility to make sure that folks interacting with the customers every day are doing what they need to do."

As gratified as M&T is to reach this point, the compliance work continues and will have to evolve, Gold said.

"This isn't a high-five and we're done and now we move on to some other project," he said. "What we've built will require a lot of care and feeding to ensure that we continue to do our part in protecting society from folks that would use the financial system for illicit purposes."

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