The Effect of Bank Mergers on Loan Prices: Evidence from the U.S.

56 Pages Posted: 15 Mar 2006 Last revised: 1 May 2009

See all articles by Isil Erel

Isil Erel

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: April 30, 2009


Bank mergers can increase or decrease loan spreads, depending on whether the increased market power outweighs efficiency gains. Using proprietary loan-level data for U.S. commercial banks, I find that, on average, mergers reduce loan spreads, with the magnitude of the reduction being larger when post-merger cost savings increase. My results suggest that the relation between spreads and the extent of market overlap between merging banks is non-monotonic. Market overlap increases cost savings and consequently lowers spreads, but when the overlap is sufficiently large, spreads increase, potentially due to the market-power effect dominating the cost savings. Furthermore, the average reduction in spreads is significant for small businesses.

JEL Classification: G21, G28, G34

Suggested Citation

Erel, Isil, The Effect of Bank Mergers on Loan Prices: Evidence from the U.S. (April 30, 2009). Fisher College of Business Working Paper No. 2006-03-002 and Charles A. Dice Center Working Paper No. 2006-19, Available at SSRN: or

Isil Erel (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

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National Bureau of Economic Research (NBER) ( email )

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European Corporate Governance Institute (ECGI) ( email )

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