Regulatory Incentives and Consolidation: The Case of Commercial Bank Mergers and the Community Reinvestment Act

Raphael Bostic, Anna Paulson, Hamid Mehran and Saidenberg Marc
Additional contact information
Saidenberg Marc: Federal Reserve Bank of New York, marc.saidenberg@ny.frb.org

The B.E. Journal of Economic Analysis & Policy, 2005, vol. 5, issue 1, 27

Abstract: Bank regulators are required to consider a bank’s record of providing credit to low- and moderate-income neighborhoods and individuals in approving bank applications for mergers and acquisitions. We provide evidence that banks self-regulate by strategically increasing their lending to these populations prior to acquiring another institution in anticipation of the regulatory and public scrutiny associated with a merger or acquisition. In particular, we show that the higher the percentage of the institution’s mortgage originations in a given year that are directed to low- and moderate-income individuals or neighborhoods, the greater the probability that the institution will acquire another bank in the following year. Further investigation bolsters the view that this correlation is due to banks’ anticipation of the public and regulatory scrutiny during the merger review process: (1) the effect cannot be explained by regulator behavior or by unobserved bank characteristics; (2) the relationship is observed for acquiring banks, which are the primary focus of scrutiny, but not for the banks that are being acquired; (3) the positive effect increases over the 1991 to 1995 time frame, a period when scrutiny of an institution’s community lending record increased; and (4) the effect is largest for big banks, who face particularly intense scrutiny.

Keywords: bank; merger; self-regulation; community reinvestment; regulatory threat (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1515/1538-0637.1392 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: Regulatory incentives and consolidation: the case of commercial bank mergers and the Community Reinvestment Act (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejeap:v:advances.5:y:2005:i:1:n:2

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejeap/html

DOI: 10.1515/1538-0637.1392

Access Statistics for this article

The B.E. Journal of Economic Analysis & Policy is currently edited by Hendrik Jürges and Sandra Ludwig

More articles in The B.E. Journal of Economic Analysis & Policy from De Gruyter
Bibliographic data for series maintained by Peter Golla ().