How much would banks be willing to pay to become \"too-big-to-fail\" and to capture other benefits?

Elijah Brewer and Julapa Jagtiani

No RWP 07-05, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: This paper examines an important aspect of the ?too-big-to-fail? (TBTF) policy employed by regulatory agencies in the United States. How much is it worth to become TBTF? How much has the TBTF status added to bank shareholders? wealth? Using market and accounting data during the merger boom (1991-2004) when larger banks greatly expanded their size through mergers and acquisitions, we find that banking organizations are willing to pay an added premium for mergers that will put them over the asset sizes that are commonly viewed as the thresholds for being TBTF. We estimate at least $14 billion in added premiums for the nine merger deals that brought the organizations over $100 billion in total assets. These added premiums may reflect that perceived benefits of being TBTF and/or other potential benefits associated with size.

Keywords: Bank; mergers (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-ban, nep-com and nep-reg
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Citations: View citations in EconPapers (16)

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