A Theory of How and Why Central-Bank Culture Supports Predatory Risk-Taking at Megabanks
38 Pages Posted: 17 Apr 2015 Last revised: 15 Dec 2015
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A Theory of How and Why Central-Bank Culture Supports Predatory Risk-Taking at Megabanks
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, safety net, financial reform, financial crisis
JEL Classification: G18, G20, E44
Suggested Citation: Suggested Citation