What Do Bankers Know?

Abstract

Are banks opaque even to insiders? We use legal insider trades of bankers to measure how much they know. Between 2003 and 2018, bank insider purchases conveyed less good news to the market than insider purchases in other industries. To identify the mechanism underlying these results, we exploit variation in approvals of Capital Purchase Program applications and changes in insider roles. Opacity seems to stem from the banks, not the regulatory environment or the ability of bankers. Our results suggest banks are difficult to understand—even for insiders. This has broader implications for governance models.

Keywords: Banks, Insider trading, Information, Governance

JEL Classification: G21, G14