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• W962323670 abstract "The number of U.S. banks has trended lower over the past 30 years, dropping from about 14,500 in the mid-1980s to 5,600 today. The number of banks declined for many reasons, such as failures during periods of crisis, consolidation spurred by the relaxation of state branching and national interstate banking restrictions, and voluntary mergers between unaffiliated banks. Since the end of the 2007-09 recession, voluntary mergers have been the primary reason for the decline.Banks merge for a number of business-related reasons. Mergers allow banks to achieve economies of scale, enhance revenues and cut costs through operational efficiencies, and diversify by expanding business lines or geographic reach. Bank mergers can result in more efficient banks and a sounder banking system and thus benefit the economy, as long as banking markets remain competitive and communities' access to banking services and credit is not diminished.This article analyzes the financial characteristics of banks with assets of $1 billion or less that were acquired by an unaffiliated bank in a voluntary merger from 2011 to 2014. The analysis finds these mergers are consistent with the goals of greater economies of scale and improved efficiency. Acquired banks are generally smaller, less profitable, less efficient, and in weaker condition than their non-acquired peers. Section I reviews the reasons for bank mergers. Section II describes the data. Section III provides a qualitative assessment of acquired-bank characteristics. Section IV analyzes the mergers to determine the relative importance and significance of an acquired bank's characteristics.I. Reasons for Bank MergersBank mergers drove the long-term downward trend in the number of banks since 1985. Even in the crisis periods of the late 1980s, early 1990s, and 2007-09, the number of mergers exceeded the number of failures every year.1 Chart 1 shows the number of community banks, defined as banks with assets of $1 billion or less, along with mergers and failures from 2007-14. Community banks are the focus because mergers involving larger banks, particularly banks with assets of more than $10 billion, are rare. For example, about 90 percent of the 1,500 mergers since 2007 involved a bank with less than $1 billion in assets.2As Chart 1 shows, the number of community banks fell by almost 1,700, or 25 percent, from 2009-11. Although the crisis started in 2007, the effects of the crisis and recession did not work their way through the banking system for a couple of years. As a result, mergers fell and failures rose significantly in 2009, though failures never exceeded mergers. Since 2011, the decline in the number of community banks has been mostly due to voluntary mergers between banks.Business-related reasons to merge reflect perceived opportunities to increase the total value of two or more separate banks by consolidating them into one entity (DeYoung and others).3 Owners of banks that are less profitable, less efficient, and in weaker condition (in the sense they are more susceptible to future financial problems) may seek to exit the industry by selling their businesses, while profitable and efficient banks may look for opportunities to expand (Hannan and Piloff; Jagtiani; Wheelock and Wilson).4In addition to quickly expanding its own business, a bank can further increase its business and revenue over time by acquiring another bank and using its resources to expand loans and other business lines. These resources may have been underused due to ineffective management or insufficient capital. For example, acquiring a bank with excess deposits provides the acquirer with a stable source of funds for expanding lending. Cyree finds that acquirers are willing to pay a larger premium over book value for a bank with a higher ratio of core deposits to assets, supporting the idea that banks with high deposit shares are attractive targets. Acquiring a bank in the same market or with similar products may allow the acquirer to capitalize on some particular expertise and thereby increase its business with modest expense. …" @default.
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• W962323670 date "2015-01-01" @default.
• W962323670 modified "2023-09-25" @default.
• W962323670 title "Bank Consolidation and Merger Activity Following the Crisis" @default.
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