Financial turmoil, failed bank acquisitions, and bank business lending behavior

This paper utilizes bank Call Report and FDIC receivership data from 1987 t o 1991 to examine the impact of a failed bank acquisition on the growth rat e of commercial and industrial (C&I) lending at the acquiring institutions. Using a two-stage least squares model with fixed effects, we find that ban ks acquiring a failed bank's assets experience a significant decline in bot h the growth rate of C&I lending and their capital asset ratios in the peri od of the acquisition. The results support anecdotal evidence that failed-b ank borrowers may experience difficulties in accessing credit once their ba nk fails and underscores the importance of bank-borrower relationships in C &I lending. Finally, the paper provides an alternative explanation for bank s' stagnant or declining business lending activity during this period of fi nancial turmoil.