Premiums in Private versus Public Bank Branch Sales

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Abstract
This paper is the first to directly estimate the determinants of differences in premiums received by public and private sellers in the market for bank branches (deposit bases). Deposit premiums received in private sector transactions exceeded those received by the FDIC and the RTC, even after controlling for known characteristics of the transactions and after corrections for possible sample selection bias. The observed differential disappeared by 1992, suggesting improved market efficiency and/or the impact of FDICIA (1991), which mandated "least-cost" resolution procedures for failed institutions. Additionally, the evidence suggests that bank branches are Independent Value Objects whose auctions always result in "unintended" transfers of value to the winning bidders. This result, while consistent with previous literature that found positive Cumulative Abnormal Returns to the winners of auctions for the branches of failed banks, nevertheless suggests that not all of the positive CARS can be due to market inefficiency.