Bank Acquisitiveness and Bailouts: Evidence on European Banks during the 2008 Financial Crisis

Abstract

Theoretical prediction that banks may pursue M&A strategies to exploit too-big-tofail subsidies caught attention in the backdrop of 2008 financial crisis. Using a sample
of 1603 M&A transactions of large European banks over the period of 1990-2006, we
investigate whether and how bank acquisitiveness relate with their bailout support
during the recent financial crisis. Our findings suggest towards a positive relation of
bank acquisitiveness not only with the probability of external support but also with
the level of such support. We also find that the bailout beneficiary banks in our sample
demonstrated a significant restraint in their post-crisis acquisitiveness. While our findings broadly substantiate ex-post materialization of safety-net benefits for highly
acquisitive banks, terming the post-crisis restraint on acquisitive behaviour of bailout
beneficiaries as voluntary or the one imposed by regulators rests an open question.