The sale of failed banks: The importance of their branch networks and of the acquirers’ financial strength

Pejman Abedifar, Morteza Abdollahzadeh, Amine Tarazi and Lawrence White

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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 444 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 banks with larger branch networks that are less dispersed geographically. When the acquirers bid (separately) for the assets of the insolvent banks, they place a positive value on the number of branches of the insolvent bank, but appear to be insensitive to geographic dispersion. Acquirers also pay more for banks with a national charter. The results additionally 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 resolution method for the FDIC and for the banking industry.

Date: 2024-12
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Published in Journal of Financial Stability, 2024, 75, pp.101338. ⟨10.1016/j.jfs.2024.101338⟩

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Journal Article: The sale of failed banks: The importance of their branch networks and of the acquirers’ financial strength (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04881038

DOI: 10.1016/j.jfs.2024.101338

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