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Banking market reaction to auctions of failed banks
Author(s) -
Molyneux Philip,
Zhou Tim Mi
Publication year - 2022
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.2166
Subject(s) - economics , common value auction , monetary economics , stock (firearms) , competition (biology) , stock market , financial system , financial economics , microeconomics , mechanical engineering , ecology , paleontology , horse , engineering , biology
In this study, we find that non‐merger rival banks of failed banks from 2008 to 2013 experience substantial negative abnormal stock returns in the United States when failed banks are auctioned. Negative abnormal returns are related to contagion effects associated with an increased probability of their own failure and the information of these rival banks' opaque assets. We also find evidence that FDIC resolutions of these failed banks, similar to previous regulatory interventions, distort the market competition.