Bank dividends, risk, and regulatory regimes
This paper investigates the relation between bank dividends and bank risk over the period 1984–2011, and assesses the existence of risk-taking and risk-shifting in the US commercial banking sector subject to regulatory regime changes. The introduction of PCA in 1992 and TARP in 2008 constitute significant regulatory regime changes, and provide the necessary framework to explore whether regime-dependent risk-shifting or risk-taking is present. We find strong evidence of risk-shifting and risk-taking over the post-PCA regime spanning the period 1992–2008. We interpret this evidence as indication of ineffectiveness of PCA in controlling risk-taking and risk-shifting. The finding of risk-taking just prior to the recent financial crisis suggests that risk-taking may be a factor contributing to this crisis. As risk-taking and risk-shifting are important aspects of bank behavior (Basel Committee on Banking Supervision, 2009), these results are of interest to bank regulators and important to Basel III.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John, Kose & Saunders, Anthony & Senbet, Lemma W, 2000.
"A Theory of Bank Regulation and Management Compensation,"
Review of Financial Studies,
Society for Financial Studies, vol. 13(1), pages 95-125.
- Kose John & Anthony Saunders & Lemma W. Senbet, 1996. "A Theory of Bank Regulation and Management Compensation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 96-30, New York University, Leonard N. Stern School of Business-.
- Kose John & Anthony Saunders & Lemma W. Senbet, 1998. "A Theory of Bank Regulation and Management Compensation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-043, New York University, Leonard N. Stern School of Business-.
- Jones, David S. & King, Kathleen Kuester, 1995. "The implementation of prompt corrective action: An assessment," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 491-510, June.
- Luc Laeven, 2002. "Bank Risk and Deposit Insurance," World Bank Economic Review, World Bank Group, vol. 16(1), pages 109-137, June.
- Laeven, Luc & Levine, Ross, 2009.
"Bank governance, regulation and risk taking,"
Journal of Financial Economics,
Elsevier, vol. 93(2), pages 259-275, August.
- Charles W. Calomiris & Joseph R. Mason, 2003. "Consequences of Bank Distress During the Great Depression," American Economic Review, American Economic Association, vol. 93(3), pages 937-947, June.
- Bikker, J.A. & Metzemakers, P.A.J., 2005.
"Bank provisioning behaviour and procyclicality,"
Journal of International Financial Markets, Institutions and Money,
Elsevier, vol. 15(2), pages 141-157, April.
- J.A. Bikker & P.A.J. Metzemakers, 2002. "Bank provisioning behaviour and procyclicality," Research Series Supervision (discontinued) 50, Netherlands Central Bank, Directorate Supervision.
- Jacob A. Bikker & Paul A.J. Metzemakers, 2003. "Bank Provisioning Behaviour and Procyclicality," DNB Staff Reports (discontinued) 111, Netherlands Central Bank.
- Peek, Joe & Rosengren, Eric, 1995.
"Bank regulation and the credit crunch,"
Journal of Banking & Finance,
Elsevier, vol. 19(3-4), pages 679-692, June.
- George J. Benston & George G. Kaufman, 1997. "FDICIA after five years: a review and evaluation," Working Paper Series, Issues in Financial Regulation WP-97-01, Federal Reserve Bank of Chicago.
- John H. Boyd & Stanley L. Graham, 1988. "The profitability and risk effects of allowing bank holding companies to merge with other financial firms: a simulation study," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-20.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Aggarwal, Raj & Jacques, Kevin T., 2001. "The impact of FDICIA and prompt corrective action on bank capital and risk: Estimates using a simultaneous equations model," Journal of Banking & Finance, Elsevier, vol. 25(6), pages 1139-1160, June.
- Allen N. Berger & Margaret K. Kyle & Joseph M. Scalise, 2000.
"Did U.S. Bank Supervisors Get Tougher During the Credit Crunch? Did They Get Easier During the Banking Boom? Did It Matter to Bank Lending?,"
NBER Working Papers
7689, National Bureau of Economic Research, Inc.
- Allen N. Berger & Margaret K. Kyle & Joseph M. Scalise, 2001. "Did U.S. Bank Supervisors Get Tougher during the Credit Crunch? Did They Get Easier during the Banking Boom? Did It Matter to Bank Lending?," NBER Chapters, in: Prudential Supervision: What Works and What Doesn't, pages 301-356 National Bureau of Economic Research, Inc.
- Allen N. Berger & Margaret K. Kyle & Joseph M. Scalise, 2000. "Did U.S. bank supervisors get tougher during the credit crunch? Did they get easier during the banking boom? Did it matter to bank lending?," Finance and Economics Discussion Series 2000-39, Board of Governors of the Federal Reserve System (U.S.).
- Armen Hovakimian & Edward J. Kane, 2000. "Effectiveness of Capital Regulation at U.S. Commercial Banks, 1985 to 1994," Journal of Finance, American Finance Association, vol. 55(1), pages 451-468, 02.
- Eugene F. Fama & Kenneth R. French, .
"Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay?.","
CRSP working papers
509, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(1), pages 67-79.
- Fama, Eugene F. & French, Kenneth R., 2001. "Disappearing dividends: changing firm characteristics or lower propensity to pay?," Journal of Financial Economics, Elsevier, vol. 60(1), pages 3-43, April.
- Akhigbe, Aigbe & Whyte, Ann Marie, 2001. "The impact of FDICIA on bank returns and risk: Evidence from the capital markets," Journal of Banking & Finance, Elsevier, vol. 25(2), pages 393-417, February.
- Casey, K. Michael & Dickens, Ross N., 2000. "The effects of tax and regulatory changes on commercial bank dividend policy," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(2), pages 279-293.
- Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
- George J. Benston & George G. Kaufman, 1997. "FDICIA after Five Years," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 139-158, Summer.
- Dahl, Drew & Spivey, Michael F., 1995. "Prompt corrective action and bank efforts to recover from undercapitalization," Journal of Banking & Finance, Elsevier, vol. 19(2), pages 225-243, May.
- Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996.
"Efficient Tests for an Autoregressive Unit Root,"
Econometric Society, vol. 64(4), pages 813-36, July.
- Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
- Tom Doan, . "ERSTEST: RATS procedure to perform Elliott-Rothenberg-Stock unit root tests," Statistical Software Components RTS00066, Boston College Department of Economics.
- Tom Doan, . "GLSDETREND: RATS procedure to perform local to unity GLS detrending," Statistical Software Components RTS00077, Boston College Department of Economics.
- Keeley, Michael C, 1990. "Deposit Insurance, Risk, and Market Power in Banking," American Economic Review, American Economic Association, vol. 80(5), pages 1183-1200, December.
- Barrios, Victor E. & Blanco, Juan M., 2003. "The effectiveness of bank capital adequacy regulation: A theoretical and empirical approach," Journal of Banking & Finance, Elsevier, vol. 27(10), pages 1935-1958, October.
- Barros, Carlos Pestana & Ferreira, Candida & Williams, Jonathan, 2007. "Analysing the determinants of performance of best and worst European banks: A mixed logit approach," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 2189-2203, July.
- Fries, Steven & Taci, Anita, 2005. "Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 55-81, January.
When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:37:y:2013:i:1:p:1-10. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.