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Welfare analysis of bank mergers with financial instability

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  • Akio Ino
  • Yusuke Matsuki

Abstract

In this study, we analyze the effect of a merger between banks by extending a structural model of the banking industry with the possibility of bank runs developed by Egan et al. (2017; American Economic Review, 107, 169–216). We use our framework to analyze whether the 2008 merger between Wells Fargo and Wachovia was beneficial for social welfare. The results suggest that the stability of the financial system is critical for evaluating mergers in the banking industry.

Suggested Citation

  • Akio Ino & Yusuke Matsuki, 2024. "Welfare analysis of bank mergers with financial instability," Bulletin of Economic Research, Wiley Blackwell, vol. 76(2), pages 409-417, April.
    • Handle: RePEc:bla:buecrs:v:76:y:2024:i:2:p:409-417
    DOI: 10.1111/boer.12434
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    References listed on IDEAS

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    1. Mark Egan & Ali Hortaçsu & Gregor Matvos, 2017. "Deposit Competition and Financial Fragility: Evidence from the US Banking Sector," American Economic Review, American Economic Association, vol. 107(1), pages 169-216, January.
    2. Berger, Allen N. & Demsetz, Rebecca S. & Strahan, Philip E., 1999. "The consolidation of the financial services industry: Causes, consequences, and implications for the future," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 135-194, February.
    3. Oktay Akkus & J. Anthony Cookson & Ali Hortaçsu, 2016. "The Determinants of Bank Mergers: A Revealed Preference Analysis," Management Science, INFORMS, vol. 62(8), pages 2241-2258, August.
    4. Dean Corbae & Pablo D'Erasmo, 2021. "Capital Buffers in a Quantitative Model of Banking Industry Dynamics," Econometrica, Econometric Society, vol. 89(6), pages 2975-3023, November.
    5. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, January.
    6. Akio Ino & Yusuke Matsuki, 2020. "Welfare analysis of bank merger with financial instability," Working Papers e149, Tokyo Center for Economic Research.
    7. Paola Sapienza, 2002. "The Effects of Banking Mergers on Loan Contracts," Journal of Finance, American Finance Association, vol. 57(1), pages 329-367, February.
    8. Isil Erel, 2011. "The Effect of Bank Mergers on Loan Prices: Evidence from the United States," The Review of Financial Studies, Society for Financial Studies, vol. 24(4), pages 1068-1101.
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