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Ethics vs. Ethos in US and UK Megabanking

Author

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  • Edward J. Kane

    (Boston College)

Abstract

Company law in the US and UK fails to acknowledge that authorities propensity to rescue giant banks from the consequences of insolvency assigns taxpayers a coerced and badly structured equity stake in too-big-to-fail institutions. The entrenched managerial norm of maximizing stockholder value lends a misplaced legitimacy to efforts by TBTF managers to take on dangerous levels of tail risk because their banks deep downside is effectively eliminated by the prospect of unlimited taxpayer support. Conventional tools of prudential regulation constrain but do not de-legitimate this behavior. To accomplish that end, this paper calls for: (1) a formal recognition of the fiduciary duties that TBTF firms owe to taxpayers and (2) criminalizing aggressive pursuit of safety-net subsidies as theft by safety net.

Suggested Citation

  • Edward J. Kane, 2016. "Ethics vs. Ethos in US and UK Megabanking," Working Papers Series 43, Institute for New Economic Thinking.
    • Handle: RePEc:thk:wpaper:43
    DOI: 10.2139/ssrn.2793387
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    References listed on IDEAS

    as
    1. Ehrlinger, Joyce & Johnson, Kerri & Banner, Matthew & Dunning, David & Kruger, Justin, 2008. "Why the unskilled are unaware: Further explorations of (absent) self-insight among the incompetent," Organizational Behavior and Human Decision Processes, Elsevier, vol. 105(1), pages 98-121, January.
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    5. Mr. C. A. E. Goodhart & Miguel A. Segoviano, 2015. "Optimal Bank Recovery," IMF Working Papers 2015/217, International Monetary Fund.
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    More about this item

    Keywords

    Too big to fail; Financial regulation; Financial crisis; Regulatory culture; Financial stability;
    All these keywords.

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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