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How have borrowers fared in banking mega-mergers?

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  • Kenneth A. Carow
  • Edward J. Kane
  • Rajesh P. Narayanan

Abstract

Previous studies of event returns surrounding bank mergers show that banks gain value in megamergers and additional value when they absorb in-market competitors. A portion of these gains has been traced to the increased bargaining power of banks vis-à-vis regulators and other competitors. We demonstrate that increased bargaining power of megabanks adversely affects loan customers of the acquired institution. Wealth losses are greater when loan customers are credit-constrained, the loan customer is smaller, or the acquisition is an in-market deal. These findings reinforce complaints that the ongoing consolidation in banking has unfavorably affected the availability of credit for smaller firms and especially capital-constrained firms.

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Bibliographic Info

Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2005-09.

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Date of creation: 2005
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Handle: RePEc:fip:fedfwp:2005-09

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Keywords: Bank mergers ; Bank loans;

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References

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Citations

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Cited by:
  1. Yoshiaki Ogura & Hirofumi Uchida, 2014. "Bank Consolidation and Soft Information Acquisition in Small Business Lending," Journal of Financial Services Research, Springer, vol. 45(2), pages 173-200, April.
  2. Elijah Brewer, III & Julapa Jagtiani, 2007. "How much would banks be willing to pay to become "too-big-to-fail" and to capture other benefits?," Research Working Paper RWP 07-05, Federal Reserve Bank of Kansas City.
  3. Christian E. Weller, 2008. "Credit Access, the Costs of Credit and Credit Market Discrimination," Working Papers wp171, Political Economy Research Institute, University of Massachusetts at Amherst.
  4. Dimitris Chronopoulos & Claudia Girardone & John Nankervis, 2013. "How Do Stock Markets in the US and Europe Price Efficiency Gains from Bank M&As?," Journal of Financial Services Research, Springer, vol. 43(3), pages 243-263, June.
  5. Miyajima, Hideaki & Yafeh, Yishay, 2007. "Japan's banking crisis: An event-study perspective," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2866-2885, September.
  6. Francis, Bill & Hasan, Iftekhar & Wang, Haizhi, 2014. "Banking deregulation, consolidation, and corporate cash holdings: U.S. evidence," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 45-56.
  7. Elijah Brewer, III & Julapa Jagtiani, 2011. "How much did banks pay to become too-big-to-fail and to become systematically important?," Working Papers 11-37, Federal Reserve Bank of Philadelphia.
  8. James McNulty & Marina Murdock & Nivine Richie, 2013. "Are commercial bank lending propensities useful in understanding small firm finance?," Journal of Economics and Finance, Springer, vol. 37(4), pages 511-527, October.
  9. Lili Xie, 2007. "Bank Consolidation and Loan Pricing," Working Papers 200706, Ball State University, Department of Economics, revised Nov 2007.
  10. Francis, Bill & Hasan, Iftekhar & Wang, Haizhi, 2008. "Bank consolidation and new business formation," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1598-1612, August.
  11. Pérez Montes, Carlos, 2014. "The effect on competition of banking sector consolidation following the financial crisis of 2008," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 124-136.
  12. Fabi�n Duarte & Andrea Repetto & Rodrigo O. Vald�s, 2005. "The Effects on Firm Borrowing Costs of Bank M&As," Documentos de Trabajo 206, Centro de Economía Aplicada, Universidad de Chile.

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