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The Credit Crisis around the Globe: Why Did Some Banks Perform Better?

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  • Beltratti, Andrea

    (Bocconi University)

  • Stulz, Rene M.

    (Ohio State University and ECGI)

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    Abstract

    Though overall bank performance from July 2007 to December 2008 was the worst since the Great Depression, there is significant variation in the cross-section of stock returns of large banks across the world during that period. We use this variation to evaluate the importance of factors that have been put forth as having contributed to the poor performance of banks during the credit crisis. Our evidence is inconsistent with the argument that poor governance of banks made the crisis worse, but it is supportive of theories that emphasize the fragility of banks financed with short-run capital market funding. Strikingly, differences in banking regulations across countries are generally uncorrelated with the performance of banks during the crisis, except that banks in countries with more restrictions on banking activities performed better, and are uncorrelated with observable risk measures of banks before the crisis. The better-performing banks had less leverage and lower returns in 2006 than the worst-performing banks.

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    File URL: http://www.cob.ohio-state.edu/fin/dice/papers/2010/2010-5.pdf
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    Bibliographic Info

    Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2010-5.

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    Date of creation: Mar 2010
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    Handle: RePEc:ecl:ohidic:2010-5

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    1. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
    2. Gary Gorton & Richard Rosen, . "Corporate Control, Portfolio Choice, and the Decline of Banking," Rodney L. White Center for Financial Research Working Papers 02-93, Wharton School Rodney L. White Center for Financial Research.
    3. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
    4. Geert Bekaert & Campbell R. Harvey, 2003. "Market Integration and Contagion," NBER Working Papers 9510, National Bureau of Economic Research, Inc.
    5. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2008. "Boards: Does one size fit all," Journal of Financial Economics, Elsevier, vol. 87(2), pages 329-356, February.
    6. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2009. "Bretton Woods II Still Defines the International Monetary System," NBER Working Papers 14731, National Bureau of Economic Research, Inc.
    7. Renee Adams & Hamid Mehran, 2003. "Is corporate governance different for bank holding companies?," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 123-142.
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    Cited by:
    1. Arthur Petit-Romec, 2011. "L'intérêt d'un renforcement des fonds propres bancaires (et de mesures complémentaires) pour concilier stabilité financière, performance et bon fonctionnement des banques," Post-Print dumas-00643745, HAL.
    2. Jin, Justin Yiqiang & Kanagaretnam, Kiridaran & Lobo, Gerald J., 2011. "Ability of accounting and audit quality variables to predict bank failure during the financial crisis," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2811-2819, November.

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