The Analysis of the Effects of Purchase and Assumption Agreements on the Financial Performance of an Acquiring Bank

Student: Shumnov Ivan

Educational Programme: Economics (Bachelor)

Year of Graduation: 2018

Purchase and assumption agreements is a method of resolution of bank insolvency widely used by FDIC now. However, it is not clear, how this method impacts on the financial performance of an acquiring bank. In this study we provide an analysis of the effects of such agreements and its different terms. We use a panel dataset of 242 P&A agreements during the period from 2010 till 2014 to provide empirical evidence of the existing influence of this method on banks’ profitability (ROA) and the quality of assets. As the effects of such transactions can become noticable with some time lag, 3 different models with different lags are estimated for each of these two variables. The results show that the participation in such transacactions in short term decreases the ROA but do not worsen the quality of loans. Some other characteristics of both acquired and acquiring banks can also have an impact in such transactions.

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