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Premiums in private versus public bank branch sales

Author

Listed:
  • James A. Berkovec
  • John J. Mingo
  • Xuechun Zhang

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 (CARs) 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.

Suggested Citation

  • James A. Berkovec & John J. Mingo & Xuechun Zhang, 1997. "Premiums in private versus public bank branch sales," Finance and Economics Discussion Series 1997-33, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:1997-33
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    References listed on IDEAS

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    1. Berger, Allen N. & Leusner, John H. & Mingo, John J., 1997. "The efficiency of bank branches," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 141-162, September.
    2. Eric Hirschhorn, 1985. "Bidding levels in purchase and assumption auctions," Proceedings 77, Federal Reserve Bank of Chicago.
    3. James, Christopher & Wier, Peggy, 1987. "An analysis of FDIC failed bank auctions," Journal of Monetary Economics, Elsevier, vol. 20(1), pages 141-153, July.
    4. Matthew T. Billett & Jane F. Coburn & John P. O'Keefe, 1995. "Acquirer gains in FDIC-assisted bank mergers: the influence of bidder competition and FDIC resolution policies," Proceedings 460, Federal Reserve Bank of Chicago.
    5. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-392, June.
    6. Giliberto, S Michael & Varaiya, Nikhil P, 1989. " The Winner's Curse and Bidder Competition in Acquisitions: Evidence from Failed Bank Auctions," Journal of Finance, American Finance Association, vol. 44(1), pages 59-75, March.
    7. Rebel A. Cole & Robert A. Eisenbeis & Joseph A. McKenzie, 1993. "Asymmetric-information and principal-agent problems as sources of value in FSLIC-assisted acquisitions of insolvent thrifts," Finance and Economics Discussion Series 93-35, Board of Governors of the Federal Reserve System (U.S.).
    8. James A. Berkovec & J. Nellie Liang, 1993. "Selection in failed bank auction prices: an econometric model of FDIC resolutions," Finance and Economics Discussion Series 93-40, Board of Governors of the Federal Reserve System (U.S.).
    9. Baibirer, Sheldon D. & Jud, G. Donald & Lindahl, Frederick W., 1992. "Regulation, competition, and abnormal returns in the market for failed thrifts," Journal of Financial Economics, Elsevier, vol. 31(1), pages 107-131.
    10. Gupta, Atul & LeCompte, Richard L. B. & Misra, Lalatendu, 1993. "FSLIC assistance and the wealth effects of savings and loan acquisitions," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 117-128, February.
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    Cited by:

    1. Marie-Paule Laurent, 2004. "Non-maturity deposits with a fidelity premium," Working Papers CEB 04-016.RS, ULB -- Universite Libre de Bruxelles.
    2. Karen Y. Jang, 2020. "Corporate Assets and Enhancing Firm Value: Evidence from the Market for Bank Branches in the US," Journal of Financial Services Research, Springer;Western Finance Association, vol. 57(3), pages 253-286, June.
    3. James M. O'Brien, 2000. "Estimating the value and interest rate risk of interest-bearing transactions deposits," Finance and Economics Discussion Series 2000-53, Board of Governors of the Federal Reserve System (U.S.).

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    Keywords

    Branch banks;

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