Lessons from the 2008-2009 US Banking Crisis

Abstract

More than 70 per cent of the largest 1,200 US banks of 2011 avoided annual losses in 2008 or 2009 largely because their operations were controlled. Bankers, faced with unexpected reverses, worked to reestablish control and profitability. Our examination of banking’s record leading up to the 2008-2009 financial crisis indicates there were several abnormal changes bankers might have observed between 2005 and 2007 to put their organizations on alert. Such alerts before the crisis could have helped some banks minimize their losses or even avoid them. Looking ahead, bankers who apply the lessons identified, herein, should report more stable profitability during the volatile phases of future business cycles. Analysts and regulators alike should be able to use these same lessons to sort resilient banks from the rest.