Download This PaperThe Carrot and the Stick: Bank Bailouts and the Disciplining Role of Board Appointments
82 Pages Posted: 8 Jul 2021 Last revised: 8 Nov 2023
There are 3 versions of this paper
The Carrot and the Stick: Bank Bailouts and the Disciplining Role of Board Appointments
The Carrot and the Stick: Bank Bailouts and the Disciplining Role of Board Appointments
The Carrot and the Stick: Bank Bailouts and the Disciplining Role of Board Appointments
Date Written: November 1, 2023
Abstract
We empirically examine the Capital Purchase Program (CPP) used by the US government to bail out distressed banks and its implications for regulatory policy. We find strong evidence that a feature of the CPP – the government’s ability to appoint independent directors on the board of an assisted bank that missed six dividend payments to Treasury – had a significant effect on bank behavior. Banks were averse to these appointments – the empirical distribution of missed payments exhibits a sharp discontinuity at five. Director appointments by Treasury were associated with improved bank performance and lower CEO pay.
Keywords: Bank Bailout, TARP, Capital Purchase Program, Dividend Payments, Board Appointments, Bank Recapitalization
JEL Classification: G01, G2, G28, G38, H81
Suggested Citation: Suggested Citation
Christian Mücke
Leibniz Institute for Financial Research SAFE ( email )
(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany
Leibniz Institute for Financial Research SAFE ( email )
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany
HOME PAGE: http://www.safe-frankfurt.de
Ca Foscari University of Venice - Dipartimento di Economia ( email )
Cannaregio 873
Venice, 30121
Italy
Anjan V. Thakor
Washington University in St. Louis - John M. Olin Business School ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
European Corporate Governance Institute (ECGI) ( email )
c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium