Which Banks Recover from Large Adverse Shocks?

52 Pages Posted: 9 Oct 2014  

Emilia Bonaccorsi di Patti

Bank of Italy

Anil K. Kashyap

University of Chicago, Booth School of Business; National Bureau of Economic Research (NBER); Federal Reserve Bank of Chicago

Date Written: September 1, 2014

Abstract

We analyze the fate of 120 Italian banks that experienced abrupt drops in profitability. About 1/3 see their profits recover. These banks were lending to riskier clients than the average in the overall economy prior to their distress. Whether they recover depends on the size of the initial profit drop and general business climate after the shock. But post-shock adjustments made by the bank, particularly to its loan portfolio, are also important. Recovering banks are significantly more aggressive in managing their riskiest clients, perhaps because well-run banks more prudently management risk or because seriously impaired banks gamble for reclamation.

Suggested Citation

Bonaccorsi di Patti, Emilia and Kashyap, Anil K., Which Banks Recover from Large Adverse Shocks? (September 1, 2014). Chicago Booth Research Paper No. 14-34. Available at SSRN: https://ssrn.com/abstract=2507869 or http://dx.doi.org/10.2139/ssrn.2507869

Emilia Bonaccorsi di Patti

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Anil K. Kashyap (Contact Author)

University of Chicago, Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7260 (Phone)
773 702-0458 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States
773-702-7260 (Phone)
773-702-0458 (Fax)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

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