How Does Capital Affect Bank Performance During Financial Crises?
53 Pages Posted: 13 Jan 2011 Last revised: 14 Jan 2013
Date Written: December 16, 2012
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: Suggested Citation