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A Theory of How and Why Central-Bank Culture Supports Predatory Risk-Taking at Megabanks

Author

Listed:
  • Edward J. Kane

    (Boston College)

Abstract

This paper applies Schein’s model of organizational culture to financial firms and their prudential regulators. It identifies a series of hard-to-change cultural norms and assumptions that support go-for-broke risk-taking by megabanks that meets the every-day definition of theft. The problem is not to find new ways to constrain this behavior, but to change the norms that support it by establishing that managers of megabanks owe duties of loyalty, competence, and care directly to taxpayers.

Suggested Citation

  • Edward J. Kane, 2015. "A Theory of How and Why Central-Bank Culture Supports Predatory Risk-Taking at Megabanks," Working Papers Series 34, Institute for New Economic Thinking.
  • Handle: RePEc:thk:wpaper:34
    as

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    File URL: http://ineteconomics.org/uploads/papers/WP34-Kane.pdf
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    References listed on IDEAS

    as
    1. Honohan, Patrick & Klingebiel, Daniela, 2003. "The fiscal cost implications of an accommodating approach to banking crises," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1539-1560, August.
    2. repec:eee:beexfi:v:1:y:2014:i:c:p:1-12 is not listed on IDEAS
    3. Edward J. Kane, 2006. "Confronting divergent interests in cross-country regulatory arrangements," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 69, pages 1-12., June.
    4. Dudley, William, 2014. "Opening remarks at the Workshop on Reforming Culture and Behavior in the Financial Services Industry," Speech 148, Federal Reserve Bank of New York.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. repec:kap:jfsres:v:53:y:2018:i:2:d:10.1007_s10693-017-0288-z is not listed on IDEAS

    More about this item

    Keywords

    regulatory culture; financial crises; too big to fail; theft by safety net; political economy;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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