Authors: Fulvia Fringuellotti and Thomas Kroen
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Staff Reports
Payout Restrictions and Bank Risk-Shifting
Number 1123
September 2024 Revised June 2025
September 2024 Revised June 2025
JEL classification: G21, G28, G35, G38
This paper studies the effects of regulatory payout restrictions on bank risk-shifting. Using policies imposed during the Covid-crisis on U.S. banks as a natural experiment and a high frequency differences-in-differences approach, we show that, when payouts are restricted, banks’ equity prices fall while their debt values appreciate. Moreover, banks that are ex-ante more exposed to the payout restrictions decrease risk-taking in lending relative to less exposed banks. Consistent with a risk-shifting channel, these effects revert once restrictions are lifted. These results indicate that payout and risk-taking choices are complementary and that regulatory payout restrictions endogenously affect bank risk-shifting.
Author Disclosure Statement(s)
Fulvia Fringuellotti
Fulvia Fringuellotti declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Thomas Kroen
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Fulvia Fringuellotti declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Thomas Kroen
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Suggested Citation:
Fringuellotti, Fulvia, and Thomas Kroen. 2024. “Payout Restrictions and Bank Risk-Shifting.” Federal Reserve Bank of New York Staff Reports, no. 1123, September. https://doi.org/10.59576/sr.1123
Fringuellotti, Fulvia, and Thomas Kroen. 2024. “Payout Restrictions and Bank Risk-Shifting.” Federal Reserve Bank of New York Staff Reports, no. 1123, September. https://doi.org/10.59576/sr.1123
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