Ethics vs. Ethos in US and UK Megabanking

Edward Kane

No 43, Working Papers Series from Institute for New Economic Thinking

Abstract: Company law in the US and UK fails to acknowledge that authorities propensity to rescue giant banks from the consequences of insolvency assigns taxpayers a coerced and badly structured equity stake in too-big-to-fail institutions. The entrenched managerial norm of maximizing stockholder value lends a misplaced legitimacy to efforts by TBTF managers to take on dangerous levels of tail risk because their banks deep downside is effectively eliminated by the prospect of unlimited taxpayer support. Conventional tools of prudential regulation constrain but do not de-legitimate this behavior. To accomplish that end, this paper calls for: (1) a formal recognition of the fiduciary duties that TBTF firms owe to taxpayers and (2) criminalizing aggressive pursuit of safety-net subsidies as theft by safety net.

Keywords: Too big to fail; Financial regulation; Financial crisis; Regulatory culture; Financial stability (search for similar items in EconPapers)
JEL-codes: A14 E58 G20 G38 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2016-05
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Persistent link: https://EconPapers.repec.org/RePEc:thk:wpaper:43

DOI: 10.2139/ssrn.2793387

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