Acquiring Failed Banks

68 Pages Posted: 4 Sep 2018 Last revised: 30 Aug 2021

See all articles by Siddharth Vij

Siddharth Vij

University of Georgia Terry College of Business

Date Written: April 29, 2019

Abstract

I study the relative importance of lending and deposit-taking for bank value in failed bank acquisitions. Comparing outcomes for winning banks to runner-up bidders in failed bank auctions, I find winners experience a 2.3\% abnormal return and this increase is mainly due to deposits, not loans. After acquisition, the winning bank cuts lending to the failed bank's borrowers and closes branches but it retains almost all acquired deposits. These deposits are not channeled into lending elsewhere. Rather, the acquirer lowers deposit rates, reflecting increased market power. Declines in lending due to the acquisition have negative local economic effects.

Keywords: Bank failure, acquisitions, deposits, lending

JEL Classification: G21, G28, G33, G34

Suggested Citation

Vij, Siddharth, Acquiring Failed Banks (April 29, 2019). Available at SSRN: https://ssrn.com/abstract=3234435 or http://dx.doi.org/10.2139/ssrn.3234435

Siddharth Vij (Contact Author)

University of Georgia Terry College of Business ( email )

620 S. Lumpkin Street
Amos Hall, B324
Athens, GA 30602
United States

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