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Is the Fox Guarding the Henhouse? Bankers in the Federal Reserve, Bank Leverage and Risk-shifting

Lim, Ivan; Hagendorff, Jens; Armitage, Seth

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Authors

Jens Hagendorff

Seth Armitage



Abstract

Nearly 30% of US banks employ at least one board member who currently serves (or has previously served) the Federal Reserve in a public service role. Public service roles take the form of Federal Reserve directorships or memberships in Federal Reserve advisory councils. We show that connections between banks and the Federal Reserve are linked to decreases in the sensitivity of bank leverage to risk. Further, connected banks extract larger public subsidies by shifting risk to the financial safety-net. Jointly, our results suggest that interactions between banks and regulators reduce supervisory effectiveness.

Citation

Lim, I., Hagendorff, J., & Armitage, S. (2019). Is the Fox Guarding the Henhouse? Bankers in the Federal Reserve, Bank Leverage and Risk-shifting. Journal of Corporate Finance, 58, 478-504. https://doi.org/10.1016/j.jcorpfin.2019.04.012

Journal Article Type Article
Acceptance Date Apr 25, 2019
Online Publication Date Apr 30, 2019
Publication Date 2019-10
Deposit Date Jul 27, 2020
Publicly Available Date Oct 30, 2020
Journal Journal of Corporate Finance
Print ISSN 0929-1199
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 58
Pages 478-504
DOI https://doi.org/10.1016/j.jcorpfin.2019.04.012
Public URL https://durham-repository.worktribe.com/output/1265493
Related Public URLs http://eprints.whiterose.ac.uk/148744/

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