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Bank regulation in a post-financial crisis landscape : essays of the interaction between financial institutions
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Florence : European University Institute, 2016
EUI; ECO; PhD Thesis
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WERGER, Charlotte Renée, Bank regulation in a post-financial crisis landscape : essays of the interaction between financial institutions, Florence : European University Institute, 2016, EUI, ECO, PhD Thesis - https://hdl.handle.net/1814/38904
Abstract
This thesis is a nexus of three topics; financial stability, banking regulation and financial influence. In four separate chapters, this work examines how financial institutions interact with their regulators, in particular after the financial crisis of 2008. Size, incentives, guarantees, moral hazard, treatment, capture and influence play an important role in the analysis. The first chapter focusses on the relation between bank size and support, confirming the hypothesis that bank size is positively related to support ratings. It also finds evidence that the effect is non-linear, confirming the ‘too-big-to-rescue’ theory. Chapter two tests whether the expectation of individual and systemic government support induces moral hazard. It shows that banks tend to be more leveraged, funded with capital of lower quality, more heavily invested in risky assets and exposed to more severe liquidity mismatch when they are perceived as being more likely to benefit from government support. In the last two chapters the focus is shifted to banks’ political activities and connections. Both chapters leverage a unique dataset that links U.S. banks’ sources of influence (e.g., lobbying expenditures, proximity to the relevant legislative committee, prior affiliation with regulatory or government institutions) to bank financial data, actual bank supervisory actions, and market-inferred expected government support. The findings in chapter three suggest that banks’ political influence indeed matters for the regulatory treatment of distressed banks, as well as for the expectation of support regardless of bank distress. Chapter four further dives into determinants of bank lobbying, and explores whether political connections and risk taking influence the decision to lobby. In combination, these findings are instructive for understanding the political landscape surrounding banks and their regulators. It also helps us to have a broader understanding of what drives government support to banks, and how in turn that support can trigger moral hazard within banks.
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Defence date: 4 February 2016
Examining Board: Professor Elena Carletti, Bocconi University and EUI, Supervisor; Professor Evi Pappa, EUI; Professor Luca Deidda, Universita’ di Sassari; Professor Wilko Bolt, Dutch Central Bank.
Examining Board: Professor Elena Carletti, Bocconi University and EUI, Supervisor; Professor Evi Pappa, EUI; Professor Luca Deidda, Universita’ di Sassari; Professor Wilko Bolt, Dutch Central Bank.