The Sale of Failed Banks: The Characteristics of Acquirers – As Well as of the Acquired – Matter

42 Pages Posted: 14 Dec 2021 Last revised: 27 Jun 2022

See all articles by Pejman Abedifar

Pejman Abedifar

University of St Andrews - School of Management; Khatam University - Tehran Institute for Advanced Studies; Khatam University

Amine Tarazi

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE); University of Limoges - Faculty of Law and Economic Science

Lawrence J. White

Stern School of Business, New York University; New York University (NYU) - Leonard N. Stern School of Business, Department of Economics

Date Written: June 12, 2022

Abstract

TThis paper studies the pricing of insolvent banks that are sold under the purchase and assumption resolution method of the Federal Deposit Insurance Corporation (FDIC). We analyze 589 acquisitions of solvent and insolvent U.S. banks between 2009:Q1 and 2016:Q3 and find that acquirers pay higher prices for insolvent banks with more branches or with a national charter. Our findings hence suggest that the franchise value is not only embedded in failed banks’ core deposits but also in the size of their branch networks. Moreover, bidders with more capital or with better loan quality tend to pay lower prices for failed banks. Failed banks are sold at higher prices in more competitive auctions. We also compare the financial strength of acquirers of failed banks with that of acquirers of healthy banks in non-assisted takeovers. The results show that the acquirers in the FDIC-assisted acquisitions have similar tier 1 ratio, but have higher non-performing loans than the acquirers in non-assisted acquisitions. In more competitive auctions, however, the acquirers have a bigger size (relative to the size of their targets) than the acquirers of solvent targets.

Keywords: Bank failures, Resolution, FDIC

JEL Classification: G21, G28

Suggested Citation

Abedifar, Pejman and Tarazi, Amine and White, Lawrence J. and White, Lawrence J., The Sale of Failed Banks: The Characteristics of Acquirers – As Well as of the Acquired – Matter (June 12, 2022). Available at SSRN: https://ssrn.com/abstract=3983380 or http://dx.doi.org/10.2139/ssrn.3983380

Pejman Abedifar (Contact Author)

University of St Andrews - School of Management ( email )

The Gateway, North Haugh
St Andrews, Fife KY16 9RJ
United Kingdom

Khatam University - Tehran Institute for Advanced Studies ( email )

Tehran
Iran

Khatam University

Tehran
Iran

Amine Tarazi

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE) ( email )

5 rue Félix Eboué
BP 3127
Limoges Cedex 1, 87031
France

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Stern School of Business, New York University ( email )

44 West 4th Street
New York, NY 10012
United States
212-998-0880 (Phone)
212-995-4218 (Fax)

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