August 1996
Federal Reserve Bank of Dallas

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Bank Mergers and Shareholder Wealth: Evidence from 1995's Megamerger Deals
Thomas F. Siems

In 1995, the value of U.S. bank mergers and acquisitions reached a record $73 billion, with consolidation among the largest banks surging. Using an event study methodology and data from the largest bank mergers of 1995, Thomas F. Siems finds that acquiring banks in mergers with the highest percentage of office overlaps received significant positive and higher abnormal returns than banks in mergers with fewer office overlaps. However, Siems finds no evidence that acquiring banks in mergers resulting in the largest increases in market concentration received higher abnormal returns. These results suggest that as the banking industry continues to consolidate, expected cost reductions and efficiency improvements, as opposed to potential gains in market power, are rewarded in the financial market at the merger announcement date.

Does Greater Mortgage Activity Lead to Greater Interest Rate Risk? Evidence from Bank Holding Companies
Kenneth J. Robinson and Kelly Klemme

Mortgage activity has gained importance over the past fifteen years as a greater mix of mortgage lenders and products has become available. Developments in the mortgage secondary market have been instrumental in increasing the liquidity and safety of mortgage lending activity, as well as providing greater avenues to hedge the risks associated with mortgage activity.

In an effort to determine if greater mortgage activity is associated with greater interest rate risk, Kenneth Robinson and Kelly Klemme analyze a sample of publicly traded bank holding companies (BHCs). Using BHC stock returns, the authors derive estimates of the extent of interest rate risk based on BHCs' involvement in mortgage-related activity. The results suggest that the stock returns of those BHCs more involved in mortgage activity are more sensitive to changes in the spread between long-term and short-term interest rates.