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Banking market reaction to auctions of failed banks

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  • Philip Molyneux
  • Tim Mi Zhou

Abstract

In this study, we find that non‐merger rival banks of failed banks from 2008 to 2013 experience substantial negative abnormal stock returns in the United States when failed banks are auctioned. Negative abnormal returns are related to contagion effects associated with an increased probability of their own failure and the information of these rival banks' opaque assets. We also find evidence that FDIC resolutions of these failed banks, similar to previous regulatory interventions, distort the market competition.

Suggested Citation

  • Philip Molyneux & Tim Mi Zhou, 2022. "Banking market reaction to auctions of failed banks," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 518-534, January.
    • Handle: RePEc:wly:ijfiec:v:27:y:2022:i:1:p:518-534
    DOI: 10.1002/ijfe.2166
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    Cited by:

    1. Tim M. Zhou, 2023. "Auctions of failed banks: an analysis of losing bidders," Review of Quantitative Finance and Accounting, Springer, vol. 61(1), pages 155-176, July.

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