Why does the FDIC sue?
Cases the Federal Deposit Insurance Corporation (FDIC) pursues against the directors and officers of failed commercial banks for (gross) negligence are important for the corporate governance of U.S. commercial banks. These cases shape the kernel of bank corporate governance, as they guide expectatio...
| Main Authors: | , |
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| Format: | Journal article |
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Elsevier
2017
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| _version_ | 1797069345719844864 |
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| author | Koch, C Okamura, K |
| author_facet | Koch, C Okamura, K |
| author_sort | Koch, C |
| collection | OXFORD |
| description | Cases the Federal Deposit Insurance Corporation (FDIC) pursues against the directors and officers of failed commercial banks for (gross) negligence are important for the corporate governance of U.S. commercial banks. These cases shape the kernel of bank corporate governance, as they guide expectations of bankers and regulators in defining the limits of unacceptable behavior under financial distress, such as risk shifting. We examine the differences in behavior of all 408 U.S. commercial banks that were taken into receivership between 2007–2012. Sued banks had different balance sheet dynamics relative to those who are not sued in the three years prior to failure. These banks were generally larger, faster growing, obtained riskier funding and tended to underprovision. We find evidence that boards of failing banks respond to litigation by reducing the use of riskier funding in an out-of-sample set of banks. Our results suggest the FDIC does set corporate governance standards for all banks by suing negligent directors and officers. |
| first_indexed | 2024-03-06T22:23:04Z |
| format | Journal article |
| id | oxford-uuid:55ba1691-1986-4f36-bb71-9eb9291b5f65 |
| institution | University of Oxford |
| last_indexed | 2024-03-06T22:23:04Z |
| publishDate | 2017 |
| publisher | Elsevier |
| record_format | dspace |
| spelling | oxford-uuid:55ba1691-1986-4f36-bb71-9eb9291b5f652022-03-26T16:45:51ZWhy does the FDIC sue?Journal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:55ba1691-1986-4f36-bb71-9eb9291b5f65Symplectic Elements at OxfordElsevier2017Koch, COkamura, KCases the Federal Deposit Insurance Corporation (FDIC) pursues against the directors and officers of failed commercial banks for (gross) negligence are important for the corporate governance of U.S. commercial banks. These cases shape the kernel of bank corporate governance, as they guide expectations of bankers and regulators in defining the limits of unacceptable behavior under financial distress, such as risk shifting. We examine the differences in behavior of all 408 U.S. commercial banks that were taken into receivership between 2007–2012. Sued banks had different balance sheet dynamics relative to those who are not sued in the three years prior to failure. These banks were generally larger, faster growing, obtained riskier funding and tended to underprovision. We find evidence that boards of failing banks respond to litigation by reducing the use of riskier funding in an out-of-sample set of banks. Our results suggest the FDIC does set corporate governance standards for all banks by suing negligent directors and officers. |
| spellingShingle | Koch, C Okamura, K Why does the FDIC sue? |
| title | Why does the FDIC sue? |
| title_full | Why does the FDIC sue? |
| title_fullStr | Why does the FDIC sue? |
| title_full_unstemmed | Why does the FDIC sue? |
| title_short | Why does the FDIC sue? |
| title_sort | why does the fdic sue |
| work_keys_str_mv | AT kochc whydoesthefdicsue AT okamurak whydoesthefdicsue |