Essays on banking

This thesis consists of two chapters that investigate two important issues in banking of the past decade: the effect of banking consolidation on the borrowers and the regulatory capital requirements for banks. The first chapter analyzes the effect of bank mergers on loan prices, and the welfare implications for borrowers. In particular I test the hypothesis that mergers create efficiency gains which are, in fact, passed on to borrowers through a reduction in interest rates. The alternative hypothesis is that mergers lead to greater market concentration and in turn an increase in the cost of capital for borrowers. Using a proprietary loan-level data set for U.S. commercial banks, I find that acquiring banks, on average, reduce the spreads on their new commercial and industrial loans after a merger. The reduction in loan spreads is both larger and also more persistent for the smaller acquirers, with total gross assets less than $10 billion. These findings seem to be driven by cost efficiencies due to mergers, since the results are stronger for the sample of acquirers with larger than median declines in their operating costs after their mergers. Moreover, the reduction in spreads is much larger if the acquirer and the target have some geographical overlap of markets before the merger, and, consequently, more potential for cost savings.

Department dc:contributor.department

Sloan School of Management

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2006

Author dc:creator

• Erel, Isil

Advisor dc:contributor.advisor

• Stewart C. Myers and Stephen A. Ross.

• Sloan School of Management.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/34145

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/34145