Is this Time Different? Do Bank CEOs Learn from Crises?

Abstract

This paper studies how the early-career exposure of bank holding company (BHC) CEOs to the 1980s savings and loans (S&L) crisis affects corporate policies and survival of the BHCs they subsequently manage. I measure the “Intensity” of crisis exposure by the bank failure rate in the states where CEOs worked during the S&L crisis. First, I identify the characteristics of BHCs managed by high-Intensity (“experienced”) CEOs and find that such BHCs exhibit lower systemic risk and are less likely to fail: a one-unit increase in Intensity is associated with 0.39% lower systemic risk and an 0.5% lower failure rate. Second, I identify the type of banking policies that account for these results. In particular, experienced CEOs adopt a BHC business model that is less affected by interest rate shocks, and they exert more effective control over credit risk. Their BHCs hold relatively large amounts of liquid assets on the balance sheet. At the same time, asset growth and diversification strategies are not affected by CEOs’ exposure to the S&L crisis. Finally, I exploit exogenous turnovers of CEOs to demonstrate that these findings are not driven by bank–CEO matching.