Revenge of the Steamroller: ABCP as a Window on Risk Choices

65 Pages Posted: 7 Aug 2016 Last revised: 30 Jun 2019

See all articles by Carlos Arteta

Carlos Arteta

World Bank, Development Prospects Group

Mark Carey

Board of Governors of the Federal Reserve - Division of International Finance (IFDP) - International Banking Section

Ricardo Correa

Board of Governors of the Federal Reserve System

Jason D. Kotter

Brigham Young University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: June 28, 2019

Abstract

We use credit-arbitrage asset-backed commercial paper vehicles as a laboratory to empirically examine financial institutions’ motivations to take bad-tail systematic risk. By comparing the characteristics of global banks that sponsored credit-arbitrage vehicles prior to the global financial crisis to those that didn’t, we show that owner-manager agency problems, government safety nets, and government ownership of banks are associated with bad-tail systematic risk-taking. Although good governance is associated with less risk-taking on average, well-governed banks that also have a high ex ante expectation of being bailed out by the government take more risk. Lastly, we find mixed evidence that tougher bank capital regulation deters bad-tail risk-taking.

Keywords: financial institutions, systematic risk, capital regulation, asset-backed commercial paper

JEL Classification: G21, G28, G32

Suggested Citation

Arteta, Carlos and Carey, Mark and Correa, Ricardo and Kotter, Jason D., Revenge of the Steamroller: ABCP as a Window on Risk Choices (June 28, 2019). Available at SSRN: https://ssrn.com/abstract=2818680 or http://dx.doi.org/10.2139/ssrn.2818680

Carlos Arteta

World Bank, Development Prospects Group ( email )

1818 H Street, NW
Washington, DC 20433
United States

Mark Carey

Board of Governors of the Federal Reserve - Division of International Finance (IFDP) - International Banking Section ( email )

20th & C Streets NW
Washington, DC 20551
United States
202-452-2784 (Phone)
202-452-5295 (Fax)

Ricardo Correa

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jason D. Kotter (Contact Author)

Brigham Young University - Department of Finance ( email )

United States

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