Bank Risk, Performance, and the 2007-08 Financial Crisis: A Times Series Examination by Institution Size

Abstract

Banking evolves as the result of changing regulations, competition, and economic opportunities.  There is little doubt that significant changes in bank operations occur due to financial crises.  The Financial Crisis of 2007-08 is merely the latest to influence the behavior of bank managers and therefore the banking business.  One question that arises is whether bank performance as measured by ROE has changed in an identifiable way since the Financial Crisis.  A second question relates to whether smaller banks are/were more or less affected by this latest Financial Crisis.  This paper examines the performance of both large and small banks through the Crisis to better understand the overall impact on the banking industry. Of primary interest is that we show that small banks are more significantly impacted by regulatory burdens than large banks during this crisis and under the Dodd-Frank Act.