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

Author

Listed:
  • Pejman Abedifar

    (Tehran Institute for Advanced Studies, Khatam University, Tehran, Iran)

  • Morteza Abdollahzadeh

    (Tehran Institute for Advanced Studies, Khatam University, Tehran, Iran, LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Lawrence J White

    (tern School of Business, New York University, New York, NY 10012-1126, USA)

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 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.

Suggested Citation

  • Pejman Abedifar & Morteza Abdollahzadeh & Lawrence J White, 2023. "The Sale of Failed Banks: The Importance of their Branch Networks and of the Acquirers' Financial Strength," Working Papers hal-04312668, HAL.
    • Handle: RePEc:hal:wpaper:hal-04312668
    Note: View the original document on HAL open archive server: https://hal.science/hal-04312668
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    Keywords

    Bank failures; Resolution; FDIC;
    All these keywords.

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