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.
Published Version
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