The Long-Run Effects of Losing Failed Bank Auctions
*By:Amanda Rae Heitz* *Abstract: *Using a proprietary database of failed bank auction participants, I examine whether acquiring a failed bank creates shareholder value by using the losers’ post-acquisition performance as a counterfactual. While the market responds favorably to all failed bank acquisition announcements, in the three years post-acquisition, acquirers with Shared-Loss Agreements (SLAs), where the FDIC absorbs approximately 80% of losses, realize abnormal returns that are 19.8% lower than auction losers. Inconsistent with the effects of a winner’s curse, abnormal returns are not related to bidder competition. However, acquirers with SLAs have less lending risk than both failed bank auction losers and winners without SLAs, suggesting that the reduction in risk stemming from SLAs plays a role in explaining the divergence in long-run abnormal returns. The working paper is posted at https://www.fdic.gov/analysis/cfr/working-papers/2022/cfr-wp2022-01.pdf <https://lnks.gd/l/eyJhbGciOiJIUzI1NiJ9.eyJidWxsZXRpbl9saW5rX2lkIjoxMDEsInVyaSI6ImJwMjpjbGljayIsImJ1bGxldGluX2lkIjoiMjAyMjAxMjcuNTI0NDA0MzEiLCJ1cmwiOiJodHRwczovL3d3dy5mZGljLmdvdi9hbmFseXNpcy9jZnIvd29ya2luZy1wYXBlcnMvMjAyMi9jZnItd3AyMDIyLTAxLnBkZj9zb3VyY2U9Z292ZGVsaXZlcnkmdXRtX21lZGl1bT1lbWFpbCZ1dG1fc291cmNlPWdvdmRlbGl2ZXJ5In0.K1TMn2qJb9sgpConAHWV9RQ7xPBdTSh1qYrx2jgZnRU/s/1689017519/br/125710149154-l> -- *Gunnar Larson - xNY.io <http://www.xNY.io> | Bank.org <http://Bank.org>* MSc <https://www.unic.ac.cy/blockchain/msc-digital-currency/?utm_source=Google&utm_medium=Search&utm_campaign=MSc-Digital-Currency-North-America&utm_term=blockchain%20unic&gclid=Cj0KCQiAyJOBBhDCARIsAJG2h5ctwwMz0MRbVSk-LaYD-GMU5UgDSw7ynxbGr_a7SkaFAZzJc1-pzxEaAi4NEALw_wcB> - Digital Currency MBA <https://www.unic.ac.cy/business-administration-entrepreneurship-and-innovation-mba-1-5-years-or-3-semesters/> - Entrepreneurship and Innovation (ip) G@xNY.io +1-646-454-9107 New York, New York 10001
participants (1)
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Gunnar Larson