Three decades of failed bank acquisitions

Using more than 30 years of data, we document that the acquisition of failed US commercial banks through FDIC-managed Purchase and Assumption (P&A) transactions leads to long-term improvements in the profitability and loan risk of the combined entity and has no detrimental effects on its capital...

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Bibliographic Details
Published in:Journal of banking & finance 2025-01, Vol.170, p.107336, Article 107336
Main Authors: Spokeviciute, Laima, Jahanshahloo, Hossein, Keasey, Kevin, Vallascas, Francesco
Format: Article
Language:English
Subjects:
Acquisitions
Bank failure
Bank risk
Resolution
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Summary:Using more than 30 years of data, we document that the acquisition of failed US commercial banks through FDIC-managed Purchase and Assumption (P&A) transactions leads to long-term improvements in the profitability and loan risk of the combined entity and has no detrimental effects on its capital adequacy. These results are generally stronger for transactions with greater potential for economies of scale and efficiency gains. Furthermore, geographic similarity in the branch network of the acquirer and the target marginally improves the profitability of the combined entity, while a greater business similarity between the merged banks has no effect on deal outcomes. Additional tests show that the presence of regulatory subsidies also improves the profitability of the combined entity. Finally, we find no support for theoretical predictions about the misallocation of failed bank assets in the presence of widespread failures in local markets. Our findings are important for the understanding of the consequences of bank resolution through assisted M&As.
ISSN:0378-4266
DOI:10.1016/j.jbankfin.2024.107336