The Long-Run Effects of Losing Failed Bank Auctions

[Gunnar Larson]

*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
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MBA
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- Entrepreneurship and Innovation (ip)

G at xNY.io
+1-646-454-9107
New York, New York 10001
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