A Theory of How and Why Central-Bank Culture Supports Predatory Risk-Taking at Megabanks

38 Pages Posted: 21 Jan 2016

See all articles by Edward J. Kane

Edward J. Kane

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 14, 2015

Abstract

This paper applies Schein’s model of organizational culture to financial firms and their prudential regulators. It identifies a series of hard-to-change cultural norms and assumptions that support go-for-broke risk-taking by megabanks that meets the every-day definition of theft. The problem is not to find new ways to constrain this behavior, but to change the norms that support it by establishing that managers of megabanks owe duties of loyalty, competence, and care directly to taxpayers.

Keywords: regulatory culture, financial crises, too big to fail, theft by safety net, political economy

JEL Classification: G20, G21, K23, P16

Suggested Citation

Kane, Edward J., A Theory of How and Why Central-Bank Culture Supports Predatory Risk-Taking at Megabanks (December 14, 2015). Institute for New Economic Thinking Working Paper Series No. 34, Available at SSRN: https://ssrn.com/abstract=2718733 or http://dx.doi.org/10.2139/ssrn.2718733

Edward J. Kane (Contact Author)

Boston College - Department of Finance ( email )

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