Which Banks Recover from Large Adverse Shocks?

59 Pages Posted: 11 Aug 2017

See all articles by Emilia Bonaccorsi di Patti

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

Multiple version iconThere are 2 versions of this paper

Date Written: August 2017

Abstract

We analyze the fate of 110 Italian banks that experienced abrupt drops in profitability, from which about 1/3 recover. Recovery depends primarily on post-shock adjustments made by the banks, particularly to their loan portfolios. Matched bank-borrower data shows that recovering banks are significantly more aggressive in managing their riskiest clients. The risk management differences are consistent with some banks cutting credit to very riskiest clients while others appear to be gambling for reclamation by continuing to extend credit to high risk borrowers.

Suggested Citation

Bonaccorsi di Patti, Emilia and Kashyap, Anil K., Which Banks Recover from Large Adverse Shocks? (August 2017). NBER Working Paper No. w23654. Available at SSRN: https://ssrn.com/abstract=3016925

Emilia Bonaccorsi di Patti (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Anil K. Kashyap

University of Chicago, Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
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National Bureau of Economic Research (NBER) ( email )

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Federal Reserve Bank of Chicago ( email )

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