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Using Deferred Compensation to Strengthen the Ethicsof Financial Regulation

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  • Edward J. Kane

Abstract

Defects in the corporate governance of government-owned enterprises tempt opportunistic officials to breach duties of public stewardship. Corporate-governance theory suggests that incentive-based deferred compensation could intensify the force that common-law duties actually exert on regulatory managers. In principle, a forfeitable fund of deferred compensation could be combined with provisions for measuring, verifying, and rewarding multiperiod performance to make top regulators accountable for maximizing the long-run net social benefits their enterprise produces. Because government deposit-insurance enterprises are purveyors of credit enhancements for which private substitute and reinsurance markets exist, their performance could be measured accurately enough to make employment contracts for deposit-insurance CEOs a promising place to experiment with this kind of accountability reform.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8399.

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Date of creation: Jul 2001
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Publication status: published as Kane, Edward J. "Using Deferred Compensation To Strengthen The Ethics Of Financial Regulation," Journal of Banking and Finance, 2002, v26(9,Sep), 1919-1933.
Handle: RePEc:nbr:nberwo:8399

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  1. Oliver Hart & John Moore, 1991. "A Theory of Debt Based on the Inalienability of Human Capital," NBER Working Papers, National Bureau of Economic Research, Inc 3906, National Bureau of Economic Research, Inc.
  2. Robert Eisenbeis & Larry Wall, 1998. "Financial regulatory structure and the resolution of conflicting goals," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Sep.
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  6. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(3), pages 371-400, August.
  7. Edward Kane, 1997. "Ethical Foundations of Financial Regulation," Journal of Financial Services Research, Springer, Springer, vol. 12(1), pages 51-74, August.
  8. Steven N. Kaplan & Per Stromberg, 2000. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," NBER Working Papers, National Bureau of Economic Research, Inc 7660, National Bureau of Economic Research, Inc.
  9. Kane, Edward J, 1996. "De Jure Interstate Banking: Why Only Now?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 28(2), pages 141-61, May.
  10. Dewatripont, Mathias & Tirole, Jean, 1994. "A Theory of Debt and Equity: Diversity of Securities and Manager-Shareholder Congruence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 1027-54, November.
  11. Larry D. Wall, 1997. "Taking note of the deposit insurance fund: a plan for the FDIC to issue capital notes," Economic Review, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Q 1, pages 14-30.
  12. Edward J. Kane, 1999. "How Offshore Financial Competition Disciplines Exit Resistence by Incentive-Conflicted Bank Regulators," NBER Working Papers, National Bureau of Economic Research, Inc 7156, National Bureau of Economic Research, Inc.
  13. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
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Cited by:
  1. Thomas F. Cosimano & Ralph Chami & Adolfo Barajas, 2005. "Did the Basel Accord Cause a Credit Slowdown in Latin America?," IMF Working Papers, International Monetary Fund 05/38, International Monetary Fund.
  2. Rekker, Saphira A.C. & Benson, Karen L. & Faff, Robert W., 2014. "Corporate social responsibility and CEO compensation revisited: Do disaggregation, market stress, gender matter?," Journal of Economics and Business, Elsevier, Elsevier, vol. 72(C), pages 84-103.
  3. Cumming, Douglas & Zambelli, Simona, 2010. "Illegal buyouts," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(2), pages 441-456, February.
  4. Gregory E. Sierra & Eli Talmor & James S. Wallace, 2004. "A unified analysis of executive pay: the case of the banking industry," Supervisory Policy Analysis Working Papers, Federal Reserve Bank of St. Louis 2004-02, Federal Reserve Bank of St. Louis.

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