We analyze the roles of bank ownership, management, and compensation structures in bank failures during the recent financial crisis. Our results suggest that failures are strongly influenced by ownership structure: high shareholdings of lower-level management and non-chief executive officer (non-CEO) higher-level management increase failure risk significantly. In contrast, shareholdings of banks’ CEOs do not have a direct impact on bank failure. These findings suggest that high stakes in the bank induce non-CEO managers to take high risks due to moral hazard incentives, which may result in bank failure. We identify tail risk in noninterest income as a primary risk-taking channel of lower-level managers.
- Bank regulation
- Bank default
- Corporate governance
Berger, A. N., Imbierowicz, B., & Rauch, C. (2016). The Roles of Corporate Governance in Bank Failures During the Recent Financial Crisis. Journal of Money, Credit and Banking, 48(4), 729-770. https://doi.org/10.1111/jmcb.12316