Regulatory Regimes and Takeovers of U.S. Thrifts

This paper examines the effect of regulatory regime changes on the attributes of acquired thrifts for periods of stringency in 1990 to 1993, and deregulation in 1994 to 2000, with the removal of significant impediments for bank takeovers of thrifts. We test a regime change hypothesis that predicts a more effective takeover market in the later regime. Consistent with the hypothesis, we find bank acquirers to engage in diverse motivations for takeovers in the later regime, including revenue turnaround motives, allowing discipline of profit inefficient firms. The results suggest greater takeover discipline in the later regime, but also suggest a complimentary role for regulatory discipline, with acquirers avoiding more cost inefficient and risky thrifts. In contrast in the early regime, regulatory concerns for building up capital dominate acquisition decisions.