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Sim Kee Boon Institute for Financial Economics

Do Bank CEOs learn from Crises?

NEWSLETTER

SKBI Newsletter | May 2025  

Do Bank CEOs learn from Crises?

Research Perspective

Industry Insights

gloria

Gloria Yang Yu,
Assistant Professor of Finance
at SMU 

belinda


Takako Masai, 
Director at SBI Financial and Economic Research Institute

Banking crises play a pivotal role in the modern economy. Could such crises have a lasting imprint on bank CEOs' risk-taking behaviour and their institutions’ resilience during future crises?

A SMU study provides compelling evidence on how crisis experiences impact CEOs in managing their banks in the U.S.

Japan faced a major financial crisis in the late 1990s, with banks in western Japan hit harder than those in the east. A decade later, the GFC—driven by the collapse of structured products—ironically had a greater impact on eastern banks. This contrast suggests that banks in western Japan, having borne the brunt of the 1990s crisis, had ended up being better prepared for the GFC. Recent research by Prof Yu offers insights into this regional divergence and the varied responses among Japanese banks. SKBI Board member Takako Masai shares more insights on this topic.

Key Messages:

  • Bank CEOs’ early career exposure to the 1980s savings and loans (S&L) crisis positively affected banks’ outcomes during the Global Financial Crisis (GFC) in 2008.
  • Banks led by conservative CEOs—those with greater S&L crisis exposure—took on less risk during normal periods and were more likely to survive the GFC.
  • Consistent with domain-specific learning, these banks exhibited lower interest rate risk, reduced exposure to risky financial innovations, and lowered credit risk—key drivers to the S&L crisis.
  • As such, CEOs’ experience-based learning fosters a culture of financial prudence in managing risks.

Overall, CEOs learned from past crises, which helped reduce their institutions’ risk exposures and enhance later crisis performance. Understanding how CEO experiences influence bank risk can help inform efforts to build a financial system less vulnerable to macroeconomic shocks.

read 

Yu, Gloria Yang, Do Bank CEOs Learn from Banking Crises. Journal of Financial Economics, volume 166, 2025.

Key Challenges:

  • Japanese bank CEOs, having experienced past financial crises, often responded by becoming excessively conservative in their approach to risk management.
  • Companies, too, shaped by the lessons of Japan’s financial crisis, adopted an extremely cautious stance toward financial leverage. This reluctance to take on risk is considered one of the reasons behind the loss of animal spirits in the economy.
  • The government and even BOJ had to step in to reallocate financial sector money to certain parts of the economy to encourage reasonable risk-taking.

Takako indicates that “Japanese banks and companies need to strike a balance between learning from past crises and expanding their risk appetite to a healthy level. The experience of US banks serves as a valuable example.”

Meet the Author: 
Asst Prof. Gloria Yang Yu (Finance) joined SMU in 2018 after completing a Ph.D. in Finance from INSEAD. Her research interests are fintech and financial intermediaries.

 

Meet the Expert:
Takako Masai is the director at SBI Financial and Economic Research Institute. She promotes financial market-related operations at Toronto-Dominion Bank, Credit Agricole Bank, Shinsei Bank and more. She was Shinsei Bank's first female executive officer, and she is appointed as a Member of Policy Board of Bank of Japan. She has been on the SKBI advisory board since 2021.

About SKBI: 
The Sim Kee Boon Institute generates financial economic research through multidisciplinary collaborations involving not only the SMU community, but also research talent from around the world as well as industry and public-sector partners. The Institute will focus its efforts on the areas of (1) Market Innovations and FinTech, (2) Sustainability and Green Finance, and (3) Household Finance and Behaviour. To maintain relevance to finance practitioners and policy-makers, SKBI also adopts a view on Asian and global economic trends. View SKBI’s research. 

About the SKBI Newsletter:
This monthly newsletter provides a unique platform to connect academic researchers and industry experts. It aims to enhance the outreach of academic studies, while fostering dialogue on key insights and challenges and stimulating new ideas and collaborations.

 

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