Revenge of the Steamroller: ABCP as a Window on Risk Choices, Carlos Arteta, Mark Carey, Ricardo Correa and Jason Kotter explore banks’ incentives to upload on tail risk through
bank-sponsored asset-backed-commercial papers. These securities offer relatively low but safe returns during normal times, but large negative returns during distress times due to maturity mis-match and reliance on wholesale funding. The authors find an interesting
interaction between governance and government-provided financial safety net (also known as bail-out expectations). On the one hand, banks with managers that had better aligned incentives with shareholder returns were on average less likely to become sponsors.
However, for such banks, which also operated with very high implicit government guarantees, this relationship reverses and such banks are more likely to sponsor such vehicles. Another important reminder that assessing the governance of banks is incomplete
without considering the role of government (guarantees).