This Time is the Same: Using Bank Performance in 1998 to Explain Bank Performance During the Recent Financial Crisis

51 Pages Posted: 16 May 2011 Last revised: 23 Jul 2023

See all articles by Rüdiger Fahlenbrach

Rüdiger Fahlenbrach

École Polytechnique Fédérale de Lausanne; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Robert Prilmeier

Tulane University - A.B. Freeman School of Business

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2011

Abstract

We investigate whether a bank's performance during the 1998 crisis, which was viewed at the time as the most dramatic crisis since the Great Depression, predicts its performance during the recent financial crisis. One hypothesis is that a bank that has an especially poor experience in a crisis learns and adapts, so that it performs better in the next crisis. Another hypothesis is that a bank's poor experience in a crisis is tied to aspects of its business model that are persistent, so that its past performance during one crisis forecasts poor performance during another crisis. We show that banks that performed worse during the 1998 crisis did so as well during the recent financial crisis. This effect is economically important. In particular, it is economically as important as the leverage of banks before the start of the crisis. The result cannot be attributed to banks having the same chief executive in both crises. Banks that relied more on short-term funding, had more leverage, and grew more are more likely to be banks that performed poorly in both crises.

Suggested Citation

Fahlenbrach, Rüdiger and Prilmeier, Robert and Stulz, Rene M., This Time is the Same: Using Bank Performance in 1998 to Explain Bank Performance During the Recent Financial Crisis (May 2011). NBER Working Paper No. w17038, Available at SSRN: https://ssrn.com/abstract=1841275

Rüdiger Fahlenbrach (Contact Author)

École Polytechnique Fédérale de Lausanne ( email )

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European Corporate Governance Institute (ECGI) ( email )

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Robert Prilmeier

Tulane University - A.B. Freeman School of Business ( email )

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Rene M. Stulz

Ohio State University (OSU) - Department of Finance ( email )

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United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI)

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1000 Brussels
Belgium

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