Abstract

http://ssrn.com/abstract=1779406
 
 

Citations (23)



 


 



This Time Is the Same: Using Bank Performance in 1998 to Explain Bank Performance During the Recent Financial Crisis


Rüdiger Fahlenbrach


Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Robert Prilmeier


Tulane University - A.B. Freeman School of Business

Rene M. Stulz


Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

June 14, 2011

Charles A. Dice Center Working Paper No. 2011-10
Fisher College of Business Working Paper No. 2011-03-010
Swiss Finance Institute Research Paper No. 11-19
AFA 2012 Chicago Meetings Paper

Abstract:     
We investigate whether a bank’s performance during the 1998 crisis, which was viewed at the time as the most dramatic crisis since the Great Depression, predicts its performance during the recent financial crisis. One hypothesis is that a bank that has an especially poor experience in a crisis learns and adapts, so that it performs better in the next crisis. Another hypothesis is that a bank’s poor experience in a crisis is tied to aspects of its business model that are persistent, so that its past performance during one crisis forecasts poor performance during another crisis. We show that banks that performed worse during the 1998 crisis did so as well during the recent financial crisis. This effect is economically important. In particular, it is economically as important as the leverage of banks before the start of the crisis. The result cannot be attributed to banks having the same chief executive in both crises. Banks that relied more on short-term funding, had more leverage, and grew more are more likely to be banks that performed poorly in both crises.

Number of Pages in PDF File: 55

Keywords: Financial crisis, systemic risk, bank returns, short-term funding, LTCM, Russian default

JEL Classification: G01, G21

working papers series





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Date posted: March 7, 2011 ; Last revised: October 12, 2011

Suggested Citation

Fahlenbrach, Rüdiger and Prilmeier, Robert and Stulz, Rene M., This Time Is the Same: Using Bank Performance in 1998 to Explain Bank Performance During the Recent Financial Crisis (June 14, 2011). Charles A. Dice Center Working Paper No. 2011-10 ; Fisher College of Business Working Paper No. 2011-03-010; Swiss Finance Institute Research Paper No. 11-19; AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1779406 or http://dx.doi.org/10.2139/ssrn.1779406

Contact Information

Rüdiger Fahlenbrach (Contact Author)
Ecole Polytechnique Fédérale de Lausanne ( email )
Quartier UNIL-Dorigny
Extranef 211
1015 Lausanne, CH-1015
Switzerland
++41-21-693-0098 (Phone)
++41-21-693-3010 (Fax)
HOME PAGE: http://sfi.epfl.ch/fahlenbrach.html
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Robert Prilmeier
Tulane University - A.B. Freeman School of Business ( email )
7 McAlister Drive
New Orleans, LA 70118
United States
Rene M. Stulz
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
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