At the turn of the century, regulators introduced policies to control bank risk-taking. Many banks appointed chief risk officers (CROs), yet bank holdings of new, complex, and untested financial derivatives subsequently soared. Why did banks expand use of new derivatives? We suggest that CROs encouraged the rise of new derivatives in two ways. First, we build on institutional arguments about the expert construction of compliance, suggesting that risk experts arrived with an agenda of maximizing risk-adjusted returns, which led them to favor the derivatives. Second, we build on moral licensing arguments to suggest that bank appointment of CROs induced "organizational licensing," leading trading-desk managers to reduce policing of their own risky behavior. We further argue that CEOs and fund managers bolstered or restrained derivatives use depending on their financial interests. We predict that CEOs favored new derivatives when their compensation rewarded risk-taking, but that both CEOs and fund managers opposed new derivatives when they held large illiquid stakes in banks. We test these predictions using data on derivatives holdings of 157 large banks between 1995 and 2010.

As the economy has grown increasingly financialized, the relationship between financial innovation and instability has attracted more attention. Previous research finds that the proliferation of complex financial innovations, like asset securitization and new financial derivatives, helped to erode the market governance arrangements that kept excessive bank risk-taking in check, inviting instability. This article presents an alternative way of understanding how financial innovations and market governance arrangements combine to shape instability. Market governance arrangements also shape how financial firms receive innovations, leading to greater or lesser instability at particular times and places. I illustrate this argument by tracing the effects of changing corporate governance arrangements at large US banks in the 1990s and 2000s. Like non-financial firms in the preceding decade, banks adopted reforms associated with the shareholder value model of corporate governance. These changes to internal bank governance arrangements affected the agendas of bank executives in ways that encouraged expanded use of securitization and derivatives. Drawing from this case, I argue that a full understanding of instability in the financialized era requires closer attention to the (institutionally-structured) interests of financial innovation users-not just to features of financial innovations themselves. Keywords Bank risk-taking. Corporate governance of banks. Financial derivatives. Financialization of banking. Securitization. Shareholder value management Increasing bank reliance on complex financial innovations is a hallmark of the recent turn towards financialization (Bryan and Rafferty 2006; van der Zwan 2014; Cetorelli et al. 2012). Prior to the 1980s, US banks made most of their money from traditional banking activities, like accepting deposits, making loans to consumers and businesses,

Interest in the institutions that structure economic behavior has a long history in sociology, extending back to the work of Marx, Weber, Durkheim, and Polanyi. With the rise of new economic sociology in the 1980s, scholars have direct renewed attention toward the informal and formal rules and conventions that structure economic life. Money, financial markets, complex organizations, and economic policies have received particular attention. One branch of scholarship in this area focuses on uncovering factors that drive the emergence or development of economic institutions. Another branch of scholarship examines the role of institutions in structuring economic behavior. A third line of research takes up the puzzle of institutional change: how stable economic conventions crumble and come to be replaced with new ones. The present article offers a broad survey of scholarship on economic institutions, with a particular focus on institutional variation and institutional change.

and her book is a testament to these intellectual strengths. If anything, I found the book to be a bit short at just 196 pages, and I wanted to continue reading and learning through Keller's insights and her gift of clear and concise writing. Given the depth of her methodology, I am certain that there is a wealth of data and analysis that did not make it into this book, and I look forward to following Keller's career as she continues to share with us what she has learned about the workers sustaining ''America's Dairyland.''

No abstract