Why does the FDIC sue?

Christoffer Koch and Ken Okamura

No 1601, Working Papers from Federal Reserve Bank of Dallas

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 in defining 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 banks were generally larger, 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.

Keywords: Financial stability; corporate governance; bank failures; financial ratios (search for similar items in EconPapers)
JEL-codes: G21 G28 G33 G34 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2016-01-25
New Economics Papers: this item is included in nep-ban, nep-cba and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Why does the FDIC sue? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddwp:1601

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DOI: 10.24149/wp1601

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