The Sale of Failed Banks: The Characteristics of Acquirers -as Well as of the Acquired -Matter.

Summary This paper studies the pricing of assets and the franchise value that is embedded in the core deposits and branches of insolvent banks that are sold under the purchase and assumption resolution method of the Federal Deposit Insurance Corporation (FDIC). We analyze 620 acquisitions of solvent and insolvent U.S. banks between 2007:Q1 and 2016:Q3 and find that acquirers pay higher prices for insolvent banks with more branches. However, acquirers with more employees pay lower premiums for assuming core deposits of insolvent banks. We also compare the financial strength of acquirers of failed banks with that of acquirers of healthy banks in non-assisted takeovers. The results show that being financially strong matters more to acquire a solvent bank than a failed bank. Our findings have important implications for policy makers.