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Premiums in private versus public bank branch sales

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  • James A. Berkovec
  • John J. Mingo
  • Xuechun Zhang
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    Abstract

    This paper is the first to directly estimate the determinants of differences in premiums received by public and private sellers in the market for bank branches (deposit bases). Deposit premiums received in private sector transactions exceeded those received by the FDIC and the RTC, even after controlling for known characteristics of the transactions and after corrections for possible sample selection bias. The observed differential disappeared by 1992, suggesting improved market efficiency and/or the impact of FDICIA (1991), which mandated "least-cost" resolution procedures for failed institutions. Additionally, the evidence suggests that bank branches are independent value objects whose auctions always result in "unintended" transfers of value to the winning bidders. This result, while consistent with previous literature that found positive cumulative abnormal returns (CARs) to the winners of auctions for the branches of failed banks, nevertheless suggests that not all of the positive CARs can be due to market inefficiency.

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    File URL: http://www.federalreserve.gov/pubs/feds/1997/199733/199733abs.html
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    File URL: http://www.federalreserve.gov/pubs/feds/1997/199733/199733pap.pdf
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1997-33.

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    Date of creation: 1997
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    Handle: RePEc:fip:fedgfe:1997-33

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    Related research

    Keywords: Branch banks;

    References

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    1. Allen Berger & John Leusner & John Mingo, 1994. "The Efficiency of Bank Branches," Center for Financial Institutions Working Papers 94-27, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. Giliberto, S Michael & Varaiya, Nikhil P, 1989. " The Winner's Curse and Bidder Competition in Acquisitions: Evidence from Failed Bank Auctions," Journal of Finance, American Finance Association, vol. 44(1), pages 59-75, March.
    3. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June.
    4. Rebel A. Cole & Robert A. Eisenbeis & Joseph A. McKenzie, 1993. "Asymmetric-information and principal-agent problems as sources of value in FSLIC-assisted acquisitions of insolvent thrifts," Finance and Economics Discussion Series 93-35, Board of Governors of the Federal Reserve System (U.S.).
    5. Eric Hirschhorn, 1985. "Bidding levels in purchase and assumption auctions," Proceedings, Federal Reserve Bank of Chicago, pages 369-388.
    6. James A. Berkovec & J. Nellie Liang, 1993. "Selection in failed bank auction prices: an econometric model of FDIC resolutions," Finance and Economics Discussion Series 93-40, Board of Governors of the Federal Reserve System (U.S.).
    7. Matthew T. Billett & Jane F. Coburn & John P. O'Keefe, 1995. "Acquirer gains in FDIC-assisted bank mergers: the influence of bidder competition and FDIC resolution policies," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 276-294.
    8. Gupta, Atul & LeCompte, Richard L. B. & Misra, Lalatendu, 1993. "FSLIC assistance and the wealth effects of savings and loan acquisitions," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 117-128, February.
    9. James, Christopher & Wier, Peggy, 1987. "An analysis of FDIC failed bank auctions," Journal of Monetary Economics, Elsevier, vol. 20(1), pages 141-153, July.
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    Cited by:
    1. Marie-Paule Laurent, 2004. "Non-maturity deposits with a fidelity premium," Working Papers CEB 04-016.RS, ULB -- Universite Libre de Bruxelles.
    2. Hans Dewachter & Marco Lyrio & Konstantijn Maes, 2006. "A multi-factor model for the valuation and risk managment of demand deposits," Working Paper Research 83, National Bank of Belgium.

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