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Essays on banking
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Home → MIT Libraries → MIT Theses → Theses - Sloan School of Management → Management - Ph.D. / Sc.D. → View Item
Essays on banking
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Author: Erel, Isil
Citable URI: http://hdl.handle.net/1721.1/34145
Other Contributors: Sloan School of Management.
Advisor: Stewart C. Myers and Stephen A. Ross.
Department: Sloan School of Management.
Publisher: Massachusetts Institute of Technology
Date Issued: 2006
Abstract:
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
Search Within This Collection Advanced Search
DSpace@MIT
Essays on banking
Research and Teaching Output of the MIT Community
Home → MIT Libraries → MIT Theses → Theses - Sloan School of Management → Management - Ph.D. / Sc.D. → View Item
Essays on banking
Download
Author: Erel, Isil
Citable URI: http://hdl.handle.net/1721.1/34145
Other Contributors: Sloan School of Management.
Advisor: Stewart C. Myers and Stephen A. Ross.
Department: Sloan School of Management.
Publisher: Massachusetts Institute of Technology
Date Issued: 2006
Abstract:
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