Acquiring Failed Banks
69 Pages Posted: 4 Sep 2018 Last revised: 12 Oct 2020
Date Written: April 29, 2019
I study the relative importance of lending and deposit-taking for bank value. Comparing outcomes for winning banks to runner-up bidders in failed bank auctions, I find winners experience a 1.5% 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 is able to lower deposit rates, reflecting increased market power. Multiple results are independent of the failed bank, suggesting the findings have broader relevance.
Keywords: Bank failure, acquisitions, deposits, lending
JEL Classification: G21, G28, G33, G34
Suggested Citation: Suggested Citation