A bank merger involving Hudson City Bancorp and M&T Bank is on hold after the Federal Reserve enacted a regulatory roadblock.

The Wall Street Journal says Hudson City Bancorp was absorbed by a subsidiary of M&T Bank (MBT) in a transaction valued at $3.7 billion.

The publication says the Federal Reserve raised concerns about M&T's anti-money-laundering program, prompting the regulator to put the merger on hold. 

The problem is just the latest in a string of issues for midsize banks, which are already facing small loan demand and weak growth prospects, the article said.

In the past, slow economic growth has prompted waves of bank mergers. But now, industry executives "understand that if we pull the trigger on a transaction, there will be a great deal of regulatory oversight and it will be more complex and take longer than it did in the past," said John Kanas, a longtime bank CEO who now runs Florida-based BankUnited Inc.