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

Arnold Cowan (), Valentina Salotti and Natalya A. Schenck

Finance Research Letters, 2022, vol. 48, issue C

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.

Keywords: Mergers banks; Bank failure; Default risk; Financial crisis; FDIC; FDICIA; Resolution (search for similar items in EconPapers)
JEL-codes: G21 G28 G34 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:48:y:2022:i:c:s1544612322001921

DOI: 10.1016/j.frl.2022.102925

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