This Time Is the Same: Using Bank Performance in 1998 to Explain Bank Performance during the Recent Financial Crisis





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    • Fahlenbrach is Associate Professor at the Ecole Polytechnique Fédérale de Lausanne (EPFL), and is affiliated with the Swiss Finance Institute; Prilmeier is Assistant Professor at Tulane University; and Stulz is the Everett D. Reese Chair of Banking and Monetary Economics, Fisher College of Business, Ohio State University, and is affiliated with NBER and ECGI. We thank two anonymous referees, an Associate Editor, Viral Acharya, Andrea Beltratti, Amit Goyal, Cam Harvey (the Editor), Florian Heider, Olivier De Jonghe, Jun-Koo Kang, Christian Laux, Claudio Loderer, Roger Loh, Angie Low, Ulrike Malmendier, Ron Masulis, Erwan Morellec, Markus Noeth, Lasse Pedersen, Jeremy Stein, Neal Stoughton, Greg Udell, Rossen Valkanov, Mitch Warachka, Josef Zechner, and seminar and conference participants at Bocconi, Ecole Polytechnique Fédérale de Lausanne, European Central Bank, European Financial Association Annual Meeting in Stockholm, 11th Annual FDIC/JFSR Bank Research Conference on Risk Management: Lessons from the Crisis, Frankfurt School of Finance & Management, Nanyang Technological University, the Ohio State University, Singapore Management University, Universität Bern, Universität Hamburg, University of New South Wales, University of Queensland, University of Sydney, University of Technology, Sydney, and Wirtschafts-universität Wien for helpful comments and suggestions. Fahlenbrach gratefully acknowledges financial support from the Swiss Finance Institute and the Swiss National Centre of Competence in Research on “Financial Valuation and Risk Management.” Part of this research was carried out while Fahlenbrach was a visiting researcher at the University of New South Wales.


Are some banks prone to perform poorly during crises? If yes, why? In this paper, we show that a bank's stock return performance during the 1998 crisis predicts its stock return performance and probability of failure during the recent financial crisis. This effect is economically large. Our findings are consistent with persistence in a bank's risk culture and/or aspects of its business model that make its performance sensitive to 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.