Why Do Banks Target ROE?
Abstract: Nonfinancial corporations focus on the growth in earnings per share (EPS) to benchmark their performance. Banks used to follow a similar practice, but starting in the late 1970s they began to emphasize return on equity (ROE) instead. In this blog post, we outline findings from our recent staff report, which argues that banks had an incentive to make this change when their charter values eroded owing to increased competition, and the incentive to change was magnified by risk-insensitive deposit insurance.
File(s): File format is text/html https://libertystreeteconomics.newyorkfed.org/2018/10/why-do-banks-target-roe.html
Provider: Federal Reserve Bank of New York
Part of Series: Liberty Street Economics
Publication Date: 2018-10-10