Acquisition and Capital Regulation of a Rate-Setting Acquirer Bank: A Contingent Claim Analysis

• Main Authors: Min-Que Chen, 陳明貴
• Other Authors: Jyh-Horng Lin
• Format: Others
• Language: zh-TW
• Published: 2000
• Online Access: http://ndltd.ncl.edu.tw/handle/31352836959145564913

碩士 === 淡江大學 === 國際貿易學系 === 88 === Observing some crucial indices of financial operation, we can find the declining trend of commercial-bank share out of total non-financial borrowing, the declining number of commercial banks in the U.S, and increase in return on asset and equity for commercial banks. Thus, we attempt to realize how acquirer bank with market power merges acquiree bank without market power take advantage of rate-setting strategy to maintain its profit. This paper analyzes a strategic bank acquisition with an option-pricing framework. The focal point of the analysis is a cost-benefit rule that determines premiums and values. Two characteristics are considered in the model: strategic substitutes or strategic complements of the two loan-rate settings, and the risk adjustment factors of the combined banks’ assets and net obligations. The implicit equilibrium interest rate settings for both the acquirer and the acquiree banks’ loans are derived and analyzed. The effect of different measures, such as give-and-take premiums paid in acquisition and regulatory capital adequacy and their impact on the acquirer bank’s rate-setting behavior is examined. The results and implications presented in this paper should provide at least some indication as to the strategic maximization behavior motivating bank acquisitions. The paper concludes that acquirer bank should take a roan-rate strategy maintains shareholders’ margin equity of consolidated bank as same as shareholders’ margin equity of acquirer bank. In addition, if there is a character of strategic substitutes in the two loan-rate settings, we can take lower loan-rate to solve higher premium in acquirer bank’s shareholder. This paper also suggests that if we can decrease risk of loan, we should take higher loan-rate if we face a higher capital-deposit ratio.