Payout Restrictions and Bank Risk-Shifting

Fulvia Fringuellotti and Thomas Kroen ()

No 1123, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper studies the effects of regulatory payout restrictions on bank risk-shifting. Using policies imposed during the Covid-crisis on U.S. banks as a natural experiment and a high frequency differences-in-differences approach, we show that, when payouts are restricted, banks’ equity prices fall while their debt values appreciate. Moreover, banks that are ex-ante more exposed to the payout restrictions decrease risk-taking in lending relative to less exposed banks. Consistent with a risk-shifting channel, these effects revert once restrictions are lifted. These results indicate that payout and risk-taking choices are complementary and that regulatory payout restrictions endogenously affect bank risk-shifting.

Keywords: banking; payout restrictions; risk-shifting; prudential regulation (search for similar items in EconPapers)
JEL-codes: G21 G28 G35 G38 (search for similar items in EconPapers)
Pages: 98
Date: 2024-09-01
New Economics Papers: this item is included in nep-cba
Note: Revised June 2025.
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1123.pdf Full text (application/pdf)
https://www.newyorkfed.org/research/staff_reports/sr1123.html Summary (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:98924

Ordering information: This working paper can be ordered from

DOI: 10.59576/sr.1123

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().