Working Paper: CEPR ID: DP15025
Authors: Reint Gropp; Steven Ongena; Joerg Rocholl; Vahid Saadi
Abstract: We assess the cleansing effects of the 2008-2009 financial crisis. U.S. regions with higher levels of supervisory forbearance on distressed banks see less restructuring in the real sector: fewer establishments, firms, and jobs are lost when more distressed banks remain in business. In these regions, the banking sector has been less healthy for several years after the crisis. Regions with less forbearance experience higher productivity growth after the crisis with more firm entries, job creation, and employment, wages, patents, and output growth. Forbearance is greater for state-chartered banks and in regions with weaker banking competition and more independent banks.
Keywords: cleansing effect; banking crises; supervisory forbearance; productivity growth
JEL Codes: G01; G21; G28; O43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| supervisory forbearance during the crisis (G28) | lower rates of establishment exits (L26) |
| supervisory forbearance during the crisis (G28) | lower job destruction (J63) |
| lower supervisory forbearance (G28) | higher productivity growth post-crisis (O49) |
| less forbearance (G51) | higher firm entries (M13) |
| less forbearance (G51) | higher job creation (J68) |
| job losses due to lower forbearance (J65) | new jobs created post-crisis (E69) |
| supervisory forbearance during the crisis (G28) | lower productivity growth post-crisis (O49) |