Private Equity and Financial Stability: Evidence from Failed Bank Resolution in the Crisis

67 Pages Posted: 10 May 2021 Last revised: 22 Jan 2022

See all articles by Emily Johnston Ross

Emily Johnston Ross

Federal Deposit Insurance Corporation (FDIC)

Song Ma

Yale School of Management; National Bureau of Economic Research (NBER)

Manju Puri

Duke University - Fuqua School of Business; NBER

Multiple version iconThere are 3 versions of this paper

Date Written: May 2021

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.

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Suggested Citation

Johnston Ross, Emily and Ma, Song and Puri, Manju, Private Equity and Financial Stability: Evidence from Failed Bank Resolution in the Crisis (May 2021). NBER Working Paper No. w28751, Available at SSRN: https://ssrn.com/abstract=3842726

Emily Johnston Ross (Contact Author)

Federal Deposit Insurance Corporation (FDIC) ( email )

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Song Ma

Yale School of Management ( email )

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National Bureau of Economic Research (NBER) ( email )

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Manju Puri

Duke University - Fuqua School of Business ( email )

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NBER

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