Market Power, Bank Megamergers, And the Welfare of Bank Borrowers

Posted by D. Daniel Sokol

Donald R. Fraser, Texas A&M University - Department of Finance, James W. Kolari, Texas A&M University - Department of Finance, Seppo Pynnonen, University of Vaasa - Department of Mathematics and Statistics, and T. Kyle Tippens, Texas A&M University - Department of Finance address Market Power, Bank Megamergers, And the Welfare of Bank Borrowers.

ABSTRACT: We assess the effects on the welfare of corporate borrowers of the recent wave of bank consolidations in the United States that has produced a small number of very large banks. Our evidence from a sample of more than 3,000 commercial borrowers from banks involved in large mergers indicates that the wealth effects on these borrowers are highly negative, statistically significant, and economically important. These negative investor perceptions seem to be driven largely by the expectation of changes in banks’ market power resulting from the mergers.