Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Dallas
Working Papers
Why does the FDIC sue?
Christoffer Koch
Ken Okamura
Abstract

Cases the Federal Deposit Insurance Corporation (FDIC) pursues against the directors and officers of failed commercial banks for (gross) negligence are important for the corporate governance of U.S. commercial banks. These cases shape the kernel of bank corporate governance, as they guide expectations of bankers and regulators in defining the limits of acceptable behavior under financial distress. We examine the differences in behavior of all 408 U.S. commercial banks that were taken into receivership between 2007–2012. Sued banks had different balance sheet dynamics in the three years prior to failure. These banks were generally larger, faster growing, obtained riskier funding and were more “optimistic”. We find evidence that the behavior of bank boards adjusts in an out-of-sample set of banks. Our results suggest the FDIC does not only pursue “deep pockets”, but sets corporate governance standards for all banks by suing negligent directors and officers.


Download Full text
Cite this item
Christoffer Koch & Ken Okamura, Why does the FDIC sue?, Federal Reserve Bank of Dallas, Working Papers 1601, 25 Jan 2016.
More from this series
JEL Classification:
Subject headings:
Keywords: Financial stability; corporate governance; bank failures; financial ratios
DOI: 10.24149/wp1601
For corrections, contact Amy Chapman ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal