Do Labor Markets Discipline? Evidence from RMBS Bankers

Abstract

This paper examines whether employees involved in RMBS securitization experienced internal and external labor market consequences relative to similar non-RMBS employees in the same banks, and why. Senior RMBS bankers experienced similar levels of job retention, promotion, and external job market opportunities. Even signers of RMBS deals with high loss and misreporting rates, or deals implicated in lawsuits experienced no adverse internal or external labor market outcomes. These findings are likely not explained by targeted or delayed employee discipline, small legal fines, or protection due to pending litigation, but are consistent with implicit upper-management approval of RMBS activities.

Keywords: RMBS fraud, labor market discipline, financial crisis

JEL Classification: G24, G28, J44, K42