The Safety and Soundness Effects of Bank M&A in the EU: Does Prudential Regulation Have any Impact?

This paper studies the impact of European bank mergers on changes in key safety and soundness measures of both acquirers and targets. We find that acquirers in cross-border deals tend to perform better when their home country prudential supervisors and deposit insurance funding systems are stricter than that of the target. For target banks, we find that stronger supervision and tougher deposit insurance funding regimes result in positive post merger changes in liquidity and performance. Overall, while bank mergers have undermined bank safety and soundness in some cases, our evidence indicates that strong regulation and supervision can partly ameliorate this.