Title

Financial Turmoil, Failed Bank Acquisitions, and Bank Business Lending Behavior

Document Type

Article

Comments

Published by Springer Science & Business Media B.V. in the Journal of Financial Services Research, volume 17 issue 2, 2000. Bryant users may access this article here.

Keywords

bank failures; bank lending; capital ratios

Publisher

Springer Science & Business Media B.V.

Abstract

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.

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