Do financial crises cleanse the banking industry? Evidence from U.S. commercial‐​bank exits

Abstract

Numerous studies highlight the large costs of financial crises in terms of financial instability and the decline of economic growth. While these costs are indisputable, more controversial is the possibility that some benefits might arise from these crises, such as the exit of less-productive firms. The proponents of these benefits see crises as a selection process that accelerates the removal of the least-productive firms, with an overall positive effect at the industry level. This argument is formalized in the cleansing view of real and financial shocks dating back to Joseph Schumpeter and his concept of creative destruction.

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ORCID for Laima Spokeviciute: orcid.org/0000-0002-6563-5790

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