Ieva Sakalauskaitė

JOB MARKET PAPER

Bank risk-taking and misconduct [PDF]

This paper studies bank misconduct using a novel dataset on malpractices that resulted in conduct costs in a sample of 30 financial institutions during 2000-2016. It shows that misconduct has been prevalent over the sample period and that its intensity varies over the business cycle. Furthermore, misconduct initiation is related to bank remuneration schemes, increasing with total CEO compensation and bonuses in periods of high economic growth and when bank leverage is high. To provide a possible explanation for the observed dynamics, the paper builds a theoretical model in which misconduct is linked to bank risk-taking. There, the implementation of profitable but risky projects requires more aggressive pay structures and increases manager incentives to engage in other activities that boost short-term returns. The findings have implications for regulation aimed at preventing malpractice in financial institutions.


WORK IN PROGRESS

US Political Corruption and Resolution of Failing Banks

This paper examines the relationship between political corruption and economic outcomes by focusing on its effects on the health of banks and their resolution. Using data on the number of public officials' convictions across US judicial districts, I find that corruption has a negative effect on bank returns and that bank failures in corrupt areas result in higher costs to the deposit insurer. Motivated by the empirical evidence, I propose a theoretical model in which corruption can result in costlier bank resolutions through reducing the profitability of local banks and thus their capacity to acquire their failing counterparts' assets at full price.

PUBLICATIONS

Long-term interest rates and public debt maturity (with Roel Beetsma and Massimo Giuliodori), Economica (2016)