After receiving hundreds of billions of dollars in bailouts in the wake of the 2008 financial crisis, American banks did not come to the aid of credit-starved American businesses. Instead, they went on to take on even bigger risks, with taxpayer money.
According to a University of Michigan study, bailed-out banks approved riskier loans and shift investment portfolios toward riskier securities. And they used American taxpayer money they used to make riskier investments. "Our results suggest a
considerable impact of government assistance on the risk of originated loans. After being approved for federal funds, program participants issue riskier loans and increase capital allocations to riskier, higher-yield financial securities, as compared to banks that were not approved for federal funds."
The key factor predicting more risk-taking was not the amount of bailout money i but the message that the government would keep propping up the banks.
That explains reports in The Wall Street Journal that US banks have now been providing even more loans to junk rated companies with bad credit ratings and high debt.
This follows on from another study which showed that the banks which actively lobbied the federal government in the years leading up to the financial crisis were more likely to benefit from government bailouts beginning in 2008.
At the very least, the American government should have tracked what was happening with the bailout money and what the banks were doing with it.
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