Market Deposit-Loan Imbalances and Bank M&A Outcomes

Abstract

Evidence on how bank merger and acquisition (M&A) affects bank customers is mixed. I reexamine deposit and loan volumes and prices around all 2,673 ownership-changing U.S. bank M&As between 1998 and 2016. M&A impacts target markets differently based on their deposit-loan imbalance. In markets where loans are scarce relative to deposits, acquirers lend more and gather fewer deposits; where deposits are scarce, the opposite holds. Incumbents counteract these changes but acquirer effects dominate. Thus, M&A equilibrates markets, reducing deposit-loan imbalances. Equilibration predicts better economic outcomes. Deposit and loan price analysis is inconclusive. Results support a welfare-enhancing view of bank M&A.