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 System

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 System ( email )

20th Street and Constitution Avenue 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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