Bank acquisitions shield risky borrowers from credit crunch
A Banco de España working paper finds that distressed bank acquisitions using the sale-of-business tool can stabilize credit supply. The study shows acquiring banks prioritize support for riskier inherited borrowers, limiting real economy disruptions.
Acquirers shield risky clients
The paper provides the first micro-level evidence on how sale-of-business (SoB) resolutions reshape credit allocation, focusing on a major Spanish bank.
The acquiring bank, Banco Santander, preserved lending relationships, strategically prioritizing support for riskier borrowers inherited from the failed Banco Popular Espa˜nol.
This stabilization occurred despite tighter capital constraints for the acquirer, achieved by reallocating credit within its broader portfolio and shifting away from more capital-intensive exposures.
The findings highlight the potential of the SoB tool to limit disruptions to the real economy, contingent on the acquirer's strategic alignment and sufficient capital capacity.
This contrasts with the 5% credit reduction by non-acquiring banks to these same risky borrowers.
Post-crisis toolkit in action
The paper examines sale-of-business (SoB) bank resolutions under the post-global financial crisis (GFC) regulatory framework.
These tools aim to manage bank failures without public bailouts, yet empirical evidence on their credit supply effects has been limited.
The resolution of Banco Popular Espa˜nol in 2017, the first under the EU's Single Resolution Mechanism, provides a unique case.
Non-acquiring banks reduced lending to failed-bank borrowers, particularly riskier ones, by 5% overall and 2% quarterly.
The acquiring bank, however, insulated these borrowers, highlighting the interplay between franchise-preservation incentives and capital constraints.
A potent, yet conditional, tool
This research provides crucial micro-level evidence, affirming the sale-of-business tool's potential to stabilize credit markets during bank resolutions.
Its effectiveness, however, hinges critically on the acquiring institution's strategic alignment and its capacity to absorb capital constraints.
Policymakers should therefore focus on fostering robust acquirer incentives and ensuring sufficient capital buffers for successful interventions.