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Atlanta Fed Working Papers


The Safety and Soundness Effects of Bank M&A in the EU

Jens Hagendorff, Maria J. Nieto, and Larry D. Wall
Working Paper 2012-13
September 2012

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This paper studies the impact of European bank mergers and acquisitions on changes in key safety and soundness measures of both acquirers and targets. We find that capitalization, profitability, and liquidity show signs of statistically and economically significant mean reversion for acquirers. Also, acquirers in cross-border deals tended to perform better when their home country prudential supervisors and deposit insurance funding systems were stricter than the target's. For target banks, the most consistent findings from the cross-sectional regressions are that stronger supervision and tougher deposit insurance funding regimes tend to result in positive postmerger changes in liquidity and performance.

JEL classification: G21, G34, G28

Key words: banks, mergers, Europe


The authors thank Ignacio Hernando, Leonidas Barbopoulos, and Allen Berger, Tobias Michalak, Arnie Cowan, Chen Liu, Kristina Minnick, Benton Gup and participants at the Southern Finance Association, Infiniti Conference on International Finance, and the Eastern Finance Association meetings. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System or the Banco de España. Any remaining errors are the authors' responsibility.

Please address questions regarding content to Jens Hagendorff, the University of Edinburgh, Business School, 29 Buccleuch Place, EH8 9JS, Edinburgh (United Kingdom), +44(0)131 6502796, jens.hagendorff@ed.ac.uk; Maria J. Nieto, Banco de España, Alcalá 48, 28014 Madrid (Spain), +34 91 338 62 86, maria.nieto@bde.es; or Larry D. Wall, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street N.E. Atlanta, GA 30309-4470 (USA), +1 404-498-8937, larry.wall@atl.frb.org

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