Should I Stay or Should I Go? Bank CEOs and the choice to opt-out of the Temporary Liquidity Guarantee Program

Abstract

While finance research shows that personal and professional characteristics of CEOs influence decision-making, we investigate bank holding companies (BHCs) CEO decisions during a crisis. The Temporary Liquidity Guarantee Program passed by the FDIC in 2008 had two separate optional programs: the Transaction Account Guarantee Program (TAGP) and the Debt Guarantee Program (DGP). We find that CEO overconfidence is a significant determinant of participation in the TAGP and that CEOs on the board of directors and CEOs education is related to the decision to issue debt under the DGP. These results may be of use to policymakers in better understanding participation in optional crisis programs. Additionally, given that the relationships between affiliated banks and BHCs is remarkably underexplored, we contribute to this area with a novel finding that affiliated banks held by BHCs tend to make uniform decisions.

Keywords: Deposit Insurance, Behavioral Finance, Financial Crisis, CEO, Bailouts, Temporary Liquidity Guarantee Program

JEL Classification: G20, G40, G38, G32, G01