Why does the FDIC sue?

Koch, Christoffer and Okamura, Ken (2015) Why does the FDIC sue? Said Business School Working Paper 2015-24.

[img]
Preview
PDF
Download (610kB) | Preview

Abstract

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. Ours is the first empirical study of such legal cases that define the limits of acceptable behavior under financial distress. 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 in the three years prior to failure. These generally larger banks were faster growing, obtained riskier funding and were more “optimistic”. We find evidence that the behavior of bank boards adjusts in an out-of-sample set of banks. Our results suggest the FDIC does not only pursue “deep pockets”, but sets corporate governance standards for all banks by suing negligent directors and officers.

Item Type: Oxford Saïd Research Paper
Keywords: Financial Stability, Corporate Governance, Bank Failures, Financial Ratios, finance
Subject(s): Finance
Date Deposited: 12 Jan 2016 10:20
Last Modified: 27 Feb 2017 14:12
Funders: N/A
URI: http://eureka.sbs.ox.ac.uk/id/eprint/5873

View statistics

Actions (login required)

Edit View Edit View