Keywords: FDIC, auctions, deposit premiums, bank failures
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
Full paper (2106 KB PDF)
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Last update: August 4, 1997