Managerial risk-taking behavior : a too-big-to-fail story
We examine the implications of the US government’s too-big-to-fail (TBTF) policy as it has been applied to banks. Using alternative measures of risk, we compare the risk-taking behavior of 11 TBTF banks, identified by the Comptroller of the Currency in 1984, to a number of non-TBTF banks. We provide...
Saved in:
| Main Authors: | , , , |
|---|---|
| Other Authors: | |
| Format: | Article |
| Language: | English |
| Published: |
2020
|
| Subjects: | |
| Online Access: | https://hdl.handle.net/10356/139526 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Institution: | Nanyang Technological University |
| Language: | English |
| Summary: | We examine the implications of the US government’s too-big-to-fail (TBTF) policy as it has been applied to banks. Using alternative measures of risk, we compare the risk-taking behavior of 11 TBTF banks, identified by the Comptroller of the Currency in 1984, to a number of non-TBTF banks. We provide both theory and new empirical evidence to support our argument that the TBTF policy leads management to significantly increase risk-taking, with no corresponding increase in performance. While prior studies have considered the effects of the TBTF policy on limited, but risk-related aspects of bank behavior, such as the cost of funds, our study provides direct evidence about the risk-taking behavior associated with the TBTF policy. Our study has important implications for the current political debate regarding the too-big-to-fail policy. |
|---|