The Sale of Failed Banks: The Importance of their Branch Networks and of the Acquirers’ Financial Strength

39 Pages Posted: 14 Dec 2021 Last revised: 11 Dec 2023

See all articles by Pejman Abedifar

Pejman Abedifar

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

Morteza Abdollahzadeh

Khatam University - Tehran Institute for Advanced Studies

Amine Tarazi

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

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: December 1, 2023

Abstract

This paper investigates the pricing of insolvent banks in the U.S. that are sold under the purchase and assumption resolution method of the Federal Deposit Insurance Corporation (FDIC). We consider quarterly data for 290 acquisitions of insolvent U.S. banks between 2009 and 2016. We find that acquirers not only pay higher prices for insolvent banks with larger core deposits, as has been highlighted by the literature (and is consistent with the FDIC’s beliefs), but also for those banks with larger branch networks that are less dispersed geographically. Acquirers also pay more for banks with a national charter. The results also show that failed banks are most likely to be acquired by relatively large and highly capitalized banks whose organic growth is not affected in the years following the acquisition. Overall, our findings contribute to a better understanding of the implications of the purchase and assumption method for the banking industry.

Keywords: Bank failures, Resolution, FDIC

JEL Classification: G21, G28

Suggested Citation

Abedifar, Pejman and Abdollahzadeh, Morteza and Tarazi, Amine and White, Lawrence J. and White, Lawrence J., The Sale of Failed Banks: The Importance of their Branch Networks and of the Acquirers’ Financial Strength (December 1, 2023). 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

Morteza Abdollahzadeh

Khatam University - Tehran Institute for Advanced Studies ( email )

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

Economic Research Forum (ERF) ( email )

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Dokki, Cairo
Egypt

Lawrence J. White

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)

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

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