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The long-term impact of bank mergers on stock performance and default risk: The aftermath of the 2008 financial crisis✰

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  • Cowan, Arnold R.
  • Salotti, Valentina
  • Schenck, Natalya A.

Abstract

•Acquirers of failed banks in 2008–2013 experience sustained stock-price increases.•The gains do not come from increased default risk borne by deposit insurance.•FDIC failed-bank auctions have not encouraged overbidding or default-risk increases.We study the long-term effects of FDIC-organized acquisitions of failed banks on shareholder wealth and default risk of acquirers in 2008–2013. Relative to acquisitions of non-failed banks, banks winning FDIC auctions experience sustained increases in shareholder value. Such failed-bank acquirers’ ability to sustain and add to their superior announcement-date value gains beyond one year may depend on subsequent FDIC-assisted acquisitions. The gains do not come from taking on increased default risk that would be borne in part by deposit insurance. The acquisition of a failed institution in an FDIC auction does not increase the default risk of the acquirer in absolute terms or relative to open-market acquisitions. We conclude that the FDIC's failed-bank auction process has not created incentives to overbid on acquisitions or increase the default risk of the acquirers.

Suggested Citation

  • Cowan, Arnold R. & Salotti, Valentina & Schenck, Natalya A., 2022. "The long-term impact of bank mergers on stock performance and default risk: The aftermath of the 2008 financial crisis✰," Finance Research Letters, Elsevier, vol. 48(C).
    • Handle: RePEc:eee:finlet:v:48:y:2022:i:c:s1544612322001921
    DOI: 10.1016/j.frl.2022.102925
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    More about this item

    Keywords

    Mergers banks; Bank failure; Default risk; Financial crisis; FDIC; FDICIA; Resolution;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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