When Are Pre-Crisis Winners Post-Crisis Losers?

55 Pages Posted: 23 Aug 2016 Last revised: 9 Mar 2017

See all articles by Kees Cools

Kees Cools

University of Groningen

Arthur van Soest

Tilburg University; Netspar; RAND Corporation; Institute for the Study of Labor (IZA)

Joris van Toor

TIAS School for Business and Society

Date Written: August 18, 2016

Abstract

Which banks did not recover from the financial crisis, and why? We document that pre-crisis high performing U.S. banks were not able to recover and to restore their performance up to eight years after the onset of the crisis. We demonstrate that their (risky) business models which allowed them to outperform their peers in the run up to the crisis were not viable anymore afterwards, leading to lagging post-crisis stock returns. Their risk culture and business model were based on low Tier 1 Ratios, high leverage and other risk factors, which were not allowed or profitable anymore after the crisis, hence their low post-crisis returns. For Europe, we find no significant correlation between pre- and post crisis bank returns. Risky business models and risk culture were less prominent at European banks, leading to a lower necessity for a fundamental post-crisis transformation.

Keywords: Banking, Financial Crisis

JEL Classification: G01, G21

Suggested Citation

Cools, Kees and van Soest, Arthur H. O. and van Toor, Joris, When Are Pre-Crisis Winners Post-Crisis Losers? (August 18, 2016). 29th Australasian Finance and Banking Conference 2016. Available at SSRN: https://ssrn.com/abstract=2826140 or http://dx.doi.org/10.2139/ssrn.2826140

Kees Cools

University of Groningen ( email )

Postbus 72
9700 AB Groningen
Netherlands

Arthur H. O. van Soest

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Joris Van Toor (Contact Author)

TIAS School for Business and Society ( email )

Warandelaan 2
TIAS Building
Tilburg, Noord Brabant 5037 AB
Netherlands

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