Recent studies document that some CEOs are overconfident. In this note, we examine the effect of CEO overconfidence on bank risk taking. We measure CEO overconfidence using press data, and bank risk taking using the standard deviation of stock returns. Controlling for a number of CEO- and...

This paper examines the relation between bank charter value and risk taking. Using a sample of U.S. banks over the period 1990–2006, we find that the relation is U-shaped: as charter value increases, risk taking first decreases and then increases. This finding is robust across alternative...

The risk-taking channel of monetary policy predicts a negative relationship between interest rates and the risk-taking incentives of bank CEOs. Using a sample of U.S. banks over the period 1992-2006, we provide empirical evidence consistent with this prediction. Our finding holds for both...

This paper presents a model of executive compensation in which the executive is risk averse and has specific knowledge - knowledge about the optimal actions to take that is costly to transfer to the principal. The model generates predictions that are consistent with the available evidence and...

We study a loan market equilibrium in which some borrowers are optimistic and banks face imperfect competition. We show that the presence of optimistic borrowers reduces the interest rate paid by safe borrowers and increases the interest rate paid by risky borrowers. But it has no net impact on...

This paper presents a model in which requiring banks to issue a proper amount of subordinated debt can constrain their risk taking both before and after debt issuance. The main idea is that the prospect of issuing debt motivates banks to invest in safe assets before debt issuance; holding such...