NY Fed Study Says Government Backstop Increases Bank Risk Appetite

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...