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Do financial crises cleanse the banking industry? Evidence from US commercial bank exits

Spokeviciute, Laima ORCID:, Keasey, Kevin and Vallascas, Francesco 2019. Do financial crises cleanse the banking industry? Evidence from US commercial bank exits. Journal of Banking and Finance 99 , pp. 222-236. 10.1016/j.jbankfin.2018.12.010

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We examine the cleansing effect of financial crises via their contribution to the exit of inefficient US commercial banks from 1984 to 2013. We find a larger increase in the exit likelihood of less efficient banks as compared to more efficient banks in the years of the Savings and Loans Crisis but not during the Global Financial Crisis. We highlight how the magnitude of the shock of the Global Financial Crisis and the subsequent, broad government interventions might explain these different results. Furthermore, we highlight that both crisis periods have a disproportionate effect on young banks regardless of their efficiency levels and that they do not generate any positive spillover effects on surviving banks in the three years post-crises in spite of some reallocation benefits in favor of new entry banks. Our findings highlight that forms of prudential regulation designed to strengthen bank resilience in good times might contribute to mitigating the effects of crisis on the longer-term productivity of the banking industry.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Publisher: Elsevier
ISSN: 0378-4266
Date of First Compliant Deposit: 30 January 2020
Date of Acceptance: 18 December 2018
Last Modified: 23 Nov 2022 22:56

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