Enabling Risk-Taking in Corporate Crime: The Role of Bailouts

Much prior research has emphasized the importance of financial deregulation in encouraging crime by financial institutions. While the loosening of regulations is certainly a central factor, another significant element is the guardrail of bailouts. They protect negligent and even rule-breaking corporate officers who take on excessive risk. Bailouts, in fact, operate to enable decision-making, which would ordinarily lean toward risk-aversion, to be more risk-seeking.