Report

Payout Restrictions and Bank Risk-Shifting

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.

JEL Classification: G21; G28; G35; G38;

https://doi.org/10.59576/sr.1123

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2024-09-01

Number: 1123

Note: Revised June 2025.