Risk-Shifting by Federally Insured Commercial Banks
AbstractMispriced and misadministered deposit insurance imparts risk-shifting incentives to U.S. banks. Regulators are expected to monitor and discipline increases in bank risk exposure that would transfer wealth from the FDIC to bank stockholders. This paper assesses the success regulators had in controlling risk-shifting by U.S. banks during 1985-1994. In contrast to single-equation estimates developed from the option model by others, our simultaneous-equation evidence indicates that regulators failed to prevent large U.S. banks from shifting risk to the FDIC. Moreover, at the margin, banks that are undercapitalized shifted risk more effectively than other sample banks.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5711.
Date of creation: Aug 1996
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Find related papers by JEL classification:
- G2 - Financial Economics - - Financial Institutions and Services
- K2 - Law and Economics - - Regulation and Business Law
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