Financial Turmoil, Failed Bank Acquisitions, and Bank Business Lending Behavior
bank failures; bank lending; capital ratios
Springer Science & Business Media B.V.
This paper utilizes bank Call Report and FDIC receivership data from 1987 to 1991 to examine the impact of a failed bank acquisition on the growth rate of commercial and industrial (C&I) lending at the acquiring institutions. Using a two-stage least squares model with fixed effects, we find that banks acquiring a failed bank's assets experience a significant decline in both the growth rate of C&I lending and their capital asset ratios in the period of the acquisition. The results support anecdotal evidence that failed-bank borrowers may experience difficulties in accessing credit once their bank fails and underscores the importance of bank-borrower relationships in C&I lending. Finally, the paper provides an alternative explanation for banks' stagnant or declining business lending activity during this period of financial turmoil.
Recommended CitationNigro, Peter J. and Jacques, Kevin T., "Financial Turmoil, Failed Bank Acquisitions, and Bank Business Lending Behavior" (2000). Finance Journal Articles. Paper 11.