How does capital affect bank performance during financial crises? |
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| Authors: | Allen N Berger Christa HS Bouwman |
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| Institution: | 1. University of South Carolina, Moore School of Business, 1705 College Street, Columbia, SC 29208, USA;2. Wharton Financial Institutions Center, University of Pennsylvania, Philadelphia, PA 19104, USA;3. Center for Economic Research (CentER)—Tilburg University, PO Box 90153, 5000 LE Tilburg, The Netherlands;4. Case Western Reserve University, Weatherhead School of Management, 10900 Euclid Avenue, 362 PBL, Cleveland, OH 44106, USA |
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| Abstract: | 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. |
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| Keywords: | G01 G28 G21 |
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