Credit Supply Effects of Distressed Bank Acquisitions

This technical report examines the credit supply effects resulting from sale-of-business (SoB) bank resolutions, particularly in the context of the post-Global Financial Crisis regulatory framework. The focus is on the resolution of Banco Popular Español, a major Spanish bank, and the implications of its acquisition by Banco Santander. The analysis provides micro-level evidence on how the SoB resolution influences credit allocation, highlighting that the acquiring bank maintained lending relationships and prioritized support for riskier inherited borrowers. This stabilization occurred despite tighter capital conditions, as the acquiring bank strategically reallocated credit within its portfolio. The report discusses the potential of the SoB tool to mitigate disruptions to the real economy, contingent on the acquirer's strategic alignment and capital capacity. The findings underscore the interplay between franchise-preservation incentives and capital constraints during bank resolutions, contributing to the understanding of credit supply dynamics in the aftermath of bank failures.