How Have Borrowers Fared in Banking Mega-mergers?

Authors

Kenneth A. Carow

Edward J. Kane

Rajesh P. Narayanan

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2005-09 | March 1, 2005

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-a-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.

Article Citation

Kane, Edward J., Kenneth A. Carow, and Rajesh P. Narayanan. 2005. “How Have Borrowers Fared in Banking Mega-mergers?,” Federal Reserve Bank of San Francisco Working Paper 2005-09. Available at https://doi.org/10.24148/wp2005-09