The role of large banks in the recent U.S. banking crisis

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The role of large banks in the recent U.S. banking crisis

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John H. Boyd
Mark Gertler

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Mark L. Gertler

Abstract

This article argues that the poor performance of the U.S. banking industry in the 1980s was due mainly to the risk-taking of the largest banks, which was encouraged by the U.S. government's too-big-to-fail policy. The article documents the recent trend toward riskier bank portfolios and the corresponding decline in bank profitability. A breakdown of the data by location and by asset size reveals that bank problems were concentrated in areas with troubled industries (oil, real estate, and agriculture) and among banks with the largest assets. In a statistical study controlling for location, asset size remains a significant factor in bank performance. The article concludes with a rough quantitative estimate of the cost to the industry of the poor performance of large banks. ; The article is an abbreviated version of a paper published by MIT Press in the NBER Macroeconomics Annual 1993.

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Publisher Info
Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

Volume (Year): (1994)
Issue (Month): Win ()
Pages: 2-21
Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Handle: RePEc:fip:fedmqr:y:1994:i:win:p:2-21:n:v.18no.1

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Gianni De NicolÃ³ & Philip F. Bartholomew & Jahanara Zaman & M. G. Zephirin, 2003. "Bank Consolidation, Internationalization and Conglomeration: Trends and Implications for Financial Risk," IMF Working Papers 03/158, International Monetary Fund. [Downloadable!]
Hendrik Hakenes & Isabel Schnabel, 2004. "Banks without Parachutes - Competitive Effects of Government Bail-out Policies," Discussion Papers 8, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
Other versions:
- Hakenes, Hendrik & Schnabel, Isabel, 2004. "Banks without Parachutes -- Competitive Effects of Government Bail-out Policies," Sonderforschungsbereich 504 Publications 04-53, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
- Hendrik Hakenes & Isabel Schnabel, 2004. "Banks without Parachutes – Competitive Effects of Government Bail-out Policies," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2004_12, Max Planck Institute for Research on Collective Goods. [Downloadable!]
William R. Emmons & R. Alton Gilbert & Timothy J. Yeager, 2002. "Scale economies and geographic diversification as forces driving community bank mergers," Supervisory Policy Analysis Working Papers 2002-02, Federal Reserve Bank of St. Louis. [Downloadable!]
William R. Emmons & R. Alton Gilbert & Timothy J. Yeager, 2001. "The importance of scale economies and geographic diversification in community bank mergers," Working Papers 2001-024, Federal Reserve Bank of St. Louis. [Downloadable!]
Gerald Carlino & Robert DeFina, 1997. "The differential regional effects of monetary policy: evidence from the U.S. States," Working Papers 97-12, Federal Reserve Bank of Philadelphia. [Downloadable!]
David A. Marshall & Edward S. Prescott, 2000. "Bank capital regulation with and without state-contingent penalties," Working Paper Series WP-00-10, Federal Reserve Bank of Chicago. [Downloadable!]
Other versions:
- Marshall, David A. & Prescott, Edward Simpson, 2001. "Bank capital regulation with and without state-contingent penalties," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 54(1), pages 139-184, June. [Downloadable!] (restricted)
Sangkyun Park, 1994. "Explanations for the increased riskiness of banks in the 1980s," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 3-24. [Downloadable!]

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