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How have borrowers fared in banking mega-mergers?

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

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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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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