Premiums in Private Versus Public Bank Branch Sales

22 Pages Posted: 4 Nov 1997

See all articles by John J. Mingo

John J. Mingo

Mingo & Co.

James A. Berkovec

Federal Home Loan Mortgage Corporation (FHLMC)

Xuechun Zhang

Asian Development Bank

Date Written: May 29, 1997

Abstract

This paper is the first to directly estimate the determinants of differences in premiums received by public and private sellers in the market for bank branches (deposit bases). Deposit premiums received in private sector transactions exceeded those received by the FDIC and the RTC, even after controlling for known characteristics of the transactions and after corrections for possible sample selection bias. The observed differential disappeared by 1992, suggesting improved market efficiency and/or the impact of FDICIA (1991), which mandated "least-cost" resolution procedures for failed institutions. Additionally, the evidence suggests that bank branches are Independent Value Objects whose auctions always result in "unintended" transfers of value to the winning bidders. This result, while consistent with previous literature that found positive Cumulative Abnormal Returns to the winners of auctions for the branches of failed banks, nevertheless suggests that not all of the positive CARS can be due to market inefficiency.

JEL Classification: G21, G14, G34, G18

Suggested Citation

Mingo, John J. and Berkovec, James A. and Zhang, Xuechun, Premiums in Private Versus Public Bank Branch Sales (May 29, 1997). Available at SSRN: https://ssrn.com/abstract=38580 or http://dx.doi.org/10.2139/ssrn.38580

John J. Mingo (Contact Author)

Mingo & Co. ( email )

P.O. Box 764
Livingston, MT 59047-0764
United States
406-222-0907 (Phone)
406-222-8093 (Fax)

James A. Berkovec

Federal Home Loan Mortgage Corporation (FHLMC) ( email )

8200 Jones Branch Drive
Mclean, VA 22102
United States
703-903-4356 (Phone)

Xuechun Zhang

Asian Development Bank

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines
632-632-4444 (Phone)

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