NY Fed Study Says Government Backstop Increases Bank Risk Appetite

HFA Padded
Mark Melin
Published on
Updated on

The New York Federal Reserve, which oversees the largest US banks, is asking the question “Do ‘too big to fail banks’ take on more risk if they are likely to receive a government bailout?”  Their answer: yes. “Historically, commentators have expressed concerns that TBTF status encourages banks to engage in risky behavior,” the report notes. “However, empirical evidence to substantiate these concerns thus far has been sparse.” Using ratings from Fitch, the report, fourth in a series of twelve covering issues surrounding large banks, examines how changes in the perceived likelihood of government support impact bank lending practices. Too big…

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HFA Padded

Mark Melin is an alternative investment practitioner whose specialty is recognizing the impact of beta market environment on a technical trading strategy. A portfolio and industry consultant, wrote or edited three books including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008) and taught a course at Northwestern University's executive education program.