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Ethics vs. Ethos in US and UK Megabanking

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  • Edward J. Kane

    (Boston College)

Abstract

Company law in the US and UK fails to acknowledge that authorities propensity to rescue giant banks from the consequences of insolvency assigns taxpayers a coerced and badly structured equity stake in too-big-to-fail institutions. The entrenched managerial norm of maximizing stockholder value lends a misplaced legitimacy to efforts by TBTF managers to take on dangerous levels of tail risk because their banks deep downside is effectively eliminated by the prospect of unlimited taxpayer support. Conventional tools of prudential regulation constrain but do not de-legitimate this behavior. To accomplish that end, this paper calls for: (1) a formal recognition of the fiduciary duties that TBTF firms owe to taxpayers and (2) criminalizing aggressive pursuit of safety-net subsidies as theft by safety net.

Suggested Citation

  • Edward J. Kane, 2016. "Ethics vs. Ethos in US and UK Megabanking," Working Papers Series 43, Institute for New Economic Thinking.
    • Handle: RePEc:thk:wpaper:43
    DOI: 10.2139/ssrn.2793387
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    References listed on IDEAS

    as
    1. Armen Hovakimian & Edward J. Kane & Luc Laeven, 2012. "Tracking Variation in Systemic Risk at US Banks During 1974-2013," NBER Working Papers 18043, National Bureau of Economic Research, Inc.
    2. Ehrlinger, Joyce & Johnson, Kerri & Banner, Matthew & Dunning, David & Kruger, Justin, 2008. "Why the unskilled are unaware: Further explorations of (absent) self-insight among the incompetent," Organizational Behavior and Human Decision Processes, Elsevier, vol. 105(1), pages 98-121, January.
    3. Mr. C. A. E. Goodhart & Miguel A. Segoviano, 2015. "Optimal Bank Recovery," IMF Working Papers 2015/217, International Monetary Fund.
    4. Halliday, Terence C. & Carruthers, Bruce G., 1996. "The moral regulation of markets: Professions, privatization and the english insolvency act 1986," Accounting, Organizations and Society, Elsevier, vol. 21(4), pages 371-413, May.
    5. Stanley Fischer, 2016. "Reflections on Macroeconomics Then and Now," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 51(3), pages 133-141, July.
    6. Kane, Edward J. & Klingebiel, Daniela, 2004. "Alternatives to blanket guarantees for containing a systemic crisis," Journal of Financial Stability, Elsevier, vol. 1(1), pages 31-63, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Too big to fail; Financial regulation; Financial crisis; Regulatory culture; Financial stability;
    All these keywords.

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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