How Does Capital Affect Bank Performance During Financial Crises?

53 Pages Posted: 13 Jan 2011 Last revised: 14 Jan 2013

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Christa H. S. Bouwman

Texas A&M University; Wharton Financial Institutions Center

Date Written: December 16, 2012

Abstract

This paper empirically examines how capital affects a bank’s performance (survival and market share), and how this effect varies across banking crises, market crises, and normal times that occurred in the U.S. over the past quarter century. We have two main results. First, capital helps small banks to increase their probability of survival and market share at all times (during banking crises, market crises, and normal times). Second, capital enhances the performance of medium and large banks primarily during banking crises. Additional tests explore channels through which capital generates the documented effects. Numerous robustness checks and additional tests are performed.

Keywords: Financial Crises, Survival, Market Share, Profitability, Liquidity Creation, Banking

JEL Classification: G01, G28, G21

Suggested Citation

Berger, Allen N. and Bouwman, Christa H. S., How Does Capital Affect Bank Performance During Financial Crises? (December 16, 2012). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1739089 or http://dx.doi.org/10.2139/ssrn.1739089

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
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Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
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European Banking Center

P.O. Box 90153
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Netherlands

Christa H. S. Bouwman (Contact Author)

Texas A&M University ( email )

360H Wehner
College Station, TX 77843-4218
United States
979-845-3514 (Phone)
979-845-3514 (Fax)

HOME PAGE: http://people.tamu.edu/~cbouwman/

Wharton Financial Institutions Center

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