How does capital affect bank performance during financial crises?

This paper empirically examines how capital affects a bank’s performance (survival and market share) and how this effect varies across banking crises, market crises, and normal times that occurred in the US over the past quarter century. We have two main results. First, capital helps small banks to...

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Bibliographic Details
Published in:Journal of financial economics 2013-07, Vol.109 (1), p.146-176
Main Authors: Berger, Allen N., Bouwman, Christa H.S.
Format: Article
Language:English
Subjects:
Banking
Banks
Capital
Economic crisis
Financial crises
Financial crisis
Financial performance
Financial services
Market share
Market shares
Probability
Profitability
Studies
Survival
U.S.A
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Summary:This paper empirically examines how capital affects a bank’s performance (survival and market share) and how this effect varies across banking crises, market crises, and normal times that occurred in the US over the past quarter century. We have two main results. First, capital helps small banks to increase their probability of survival and market share at all times (during banking crises, market crises, and normal times). Second, capital enhances the performance of medium and large banks primarily during banking crises. Additional tests explore channels through which capital generates these effects. Numerous robustness checks and additional tests are performed.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2013.02.008