Selling Failed Banks

JoÃo Granja, Gregor Matvos, Amit Seru

Research output: Contribution to journalArticlepeer-review

14 Scopus citations

Abstract

The average FDIC loss from selling a failed bank is 28% of assets. We document that failed banks are predominantly sold to bidders within the same county, with similar assets business lines, when these bidders are well capitalized. Otherwise, they are acquired by less similar banks located further away. We interpret these facts within a model of auctions with budget constraints, in which poor capitalization of some potential acquirers drives a wedge between their willingness and ability to pay for failed banks. We document that this wedge drives misallocation, and partially explains the FDIC losses from failed bank sales.

Original languageEnglish (US)
Pages (from-to)1723-1784
Number of pages62
JournalJournal of Finance
Volume72
Issue number4
DOIs
StatePublished - Aug 1 2017

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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