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Risky Business: Institutional Logics and Risk Taking at Large U.S. Commercial Banks

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  • Joe LaBriola

Abstract

Objective This article aims to answer whether increased securitization and/or increased shareholder value pressures at commercial banks have led to higher levels of risk. Methods Using data on large U.S. commercial banks from several sources, I estimate linear partial‐adjustment models to predict the effects of securitization, as well as CEO incentives to increase shareholder value, on leverage. Results These models provide evidence that increases in the relative size of trading securities at a commercial bank are significantly associated with increases in leverage. Meanwhile, the relative size of total securities and CEO incentives to increase shareholder value do not appear to affect leverage. Conclusion These findings suggest that limiting commercial bank speculation in securities markets may reduce the likelihood that commercial banks face large losses or become insolvent in financial downturns.

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  • Joe LaBriola, 2019. "Risky Business: Institutional Logics and Risk Taking at Large U.S. Commercial Banks," Social Science Quarterly, Southwestern Social Science Association, vol. 100(1), pages 389-404, February.
    • Handle: RePEc:bla:socsci:v:100:y:2019:i:1:p:389-404
    DOI: 10.1111/ssqu.12560
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    Cited by:

    1. Jennifer Kunz & Mathias Heitz, 2021. "Banks’ risk culture and management control systems: A systematic literature review," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 32(4), pages 439-493, December.

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