Does Efficiency Help Banks Survive and Thrive during Financial Crises?

48 Pages Posted: 18 May 2017 Last revised: 15 Jul 2017

See all articles by Albert Assaf

Albert Assaf

University of Massachusetts Amherst

Allen N. Berger

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

Raluca A. Roman

Federal Reserve Bank of Philadelphia

Efthymios G. Tsionas

Lancaster University

Date Written: July 12, 2017

Abstract

We examine how bank efficiency during normal times affects survival, risk, and profitability during subsequent financial crises using data from five U.S. financial crises and preceding normal times. We find cost efficiency during normal times helps reduce bank failure probabilities, decrease risk, and enhance profitability during subsequent financial crises, while profit efficiency has limited benefits. Results suggest that cost efficiency better measures management quality, while profit efficiency may partially reflect temporary high returns from risky investments during normal times. Findings imply policymakers, regulators, supervisors, and managers may focus on cost efficiency during normal times to promote better financial crisis performance.

Keywords: Banking, Efficiency, Financial Crises, Performance, Survival, Risk, Profitability

JEL Classification: G18, G21, G28

Suggested Citation

Assaf, Albert and Berger, Allen N. and Roman, Raluca A. and Tsionas, Efthymios G., Does Efficiency Help Banks Survive and Thrive during Financial Crises? (July 12, 2017). Available at SSRN: https://ssrn.com/abstract=2970251 or http://dx.doi.org/10.2139/ssrn.2970251

Albert Assaf

University of Massachusetts Amherst ( email )

Department of Operations and Information Managemen
Amherst, MA 01003
United States

Allen N. Berger

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

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Raluca A. Roman (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Efthymios G. Tsionas

Lancaster University ( email )

Lancaster LA1 4YX
United Kingdom

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