|
How Much Would Banks Be Willing to Pay to Become "Too-Big-to-Fail" and to Capture Other Benefits? By Elijah Brewer III and Julapa Jagtiani |
|
Abstract This paper examines an important aspect of the
“too-big-to-fail” (TBTF) policy employed by regulatory agencies in the
United States. How much is it worth to become TBTF? How much has the TBTF
status added to bank shareholders’ wealth? Using market and accounting data
during the merger boom (1991-2004) when larger banks greatly expanded their
size through mergers and acquisitions, we find that banking organizations
are willing to pay an added premium for mergers that will put them over the
asset sizes that are commonly viewed as the thresholds for being TBTF. We
estimate at least $14 billion in added premiums for the nine merger deals
that brought the organizations over $100 billion in total assets. These
added premiums may reflect that perceived benefits of being TBTF and/or
other potential benefits associated with size. Back to top RWP home |