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Once bitten twice shy? Evidence from the U.S. banking industry during the crash of the energy market

Zhongdong Chen, Karen Ann Craig and Mikhael Karpovics

Energy Economics, 2020, vol. 92, issue C

Abstract: We explore whether banks learn from past experience and modify their risk culture. Evaluating bank risk culture during the 2014 energy crash fueled by excessive bank lending, we find banks with a quick recovery after the 2007 subprime crisis find it unnecessary to change their risk culture, and banks that struggled to recover modify their risk culture following the subprime crisis. As a result, banks with poorer stock performance and a lower z-score during the subprime crisis that had a quick recovery are more likely to underperform during the energy crash. However, results show that while these banks do not modify their overall risk culture, they have learned from the subprime crisis by better positioning themselves for potential losses. In addition, larger banks and banks that did not receive TARP funding have not significantly changed their risk culture following the subprime crisis.

Keywords: Financial crises; Bank risk culture; Energy crash (search for similar items in EconPapers)
JEL-codes: G01 G14 G21 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:92:y:2020:i:c:s0140988320303212

DOI: 10.1016/j.eneco.2020.104981

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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