TY  - JOUR
AU  - Hovakimian,Armen
AU  - Kane,Edward J.
TI  - Risk-Shifting by Federally Insured Commercial Banks
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5711
PY  - 1996
Y2  - August 1996
UR  - http://www.nber.org/papers/w5711
L1  - http://www.nber.org/papers/w5711.pdf
N1  - Author contact info:
Armen Hovakimian
Department of  Economics and Finance
Baruch College Zicklin School of Business
1 Bernard Baruch Way
New York, NY 10010
Tel: 646-312-3490
Fax: 646-312-3451
E-Mail: Armen_Hovakimian@baruch.cuny.edu

Edward J. Kane
2325 E Calle Los Altos
Tucson, AZ 85718
Tel: 520-299-5066
E-Mail: edward.kane@bc.edu
AB  - Mispriced and misadministered deposit insurance imparts risk-shifting incentives to U.S. banks.  Regulators are expected to monitor and discipline increases in bank risk exposure that would transfer wealth from the FDIC to bank stockholders.  This paper assesses the success regulators had in controlling risk-shifting by U.S. banks during 1985-1994.  In contrast to single-equation estimates developed from the option model by others, our simultaneous-equation evidence indicates that regulators failed to prevent large U.S. banks from shifting risk to the FDIC. Moreover, at the margin, banks that are undercapitalized shifted risk more effectively than other sample banks.
ER  -