Working Paper: NBER ID: w28751
Authors: Emily Johnston; Ross Song Ma; Manju Puri
Abstract: This paper investigates the role of private equity (PE) in failed bank resolutions after the 2008 financial crisis, using proprietary FDIC failed bank acquisition data. PE investors made substantial investments in underperforming and riskier failed banks, particularly in geographies where local banks were also distressed, filling the gap created by a weak, undercapitalized banking sector. Using a quasi-random empirical design based on detailed bidding information, we show PE-acquired banks performed better ex post, with positive real effects for the local economy. Overall, PE investors had a positive role in stabilizing the financial system through their involvement in failed bank resolution.
Keywords: Private Equity; Financial Stability; Bank Resolution; Crisis
JEL Codes: E65; G18; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| PE-acquired banks (G21) | bank-acquired banks (G21) |
| PE-acquired bank branches (G21) | bank-acquired banks (G21) |
| PE-acquired banks (G21) | local economic recovery (R11) |
| PE-acquired banks (G21) | counties with PE-acquired banks (G21) |
| Management expertise of PE investors (G31) | PE-acquired banks (G21) |
| PE investors (G23) | financial stability and economic recovery (G28) |