Advanced Search
MyIDEAS: Login

The Case For Intervening In Bankers' Pay

Contents:

Author Info

  • John Thanassoulis

Abstract

This paper studies banker remuneration in a competitive market for banker talent.� I model, and then calibrate, the default risk of the banks generated by investments and remuneration pressures.� Competing banks prefer to pay their banking staff in bonuses and not in wages as risk sharing on the remuneration bill is valuable.� But competition for bankers generates a negative externality driving up rival banks' default risk.� Optimal financial regulation involves an appropriately structured limit on the proportion of the balance sheet used for bonuses.� However stringent bonus caps are value destroying, default risk enhancing and cannot be optimal for regulators who control only a small number of banks.� The paper allows an assessment of the intellectual arguments behind widespread calls to regulate the pay of bankers.� The paper uses US data to calibrate the analysis and demonstrate the significant contribution of remuneration to default risk.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper532.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 532.

as in new window
Length:
Date of creation: 01 Feb 2011
Date of revision:
Handle: RePEc:oxf:wpaper:532

Contact details of provider:
Postal: Manor Rd. Building, Oxford, OX1 3UQ
Email:
Web page: http://www.economics.ox.ac.uk/
More information through EDIRC

Related research

Keywords: Bonuses; default risk; competition for bankers; financial regulation;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Fabienne Llense, 2010. "French CEOs' Compensations: What is the Cost of a Mandatory Upper Limit?," CESifo Economic Studies, CESifo, vol. 56(2), pages 165-191, June.
  2. Gabaix, Xavier & Landier, Augustin, 2008. "Why Has CEO Pay Increased So Much?," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  3. Wagner, Wolf, 2010. "Diversification at financial institutions and systemic crises," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 373-386, July.
  4. Nocke, Volker & Thanassoulis, John, 2010. "Vertical Relations under Credit Constraints," CEPR Discussion Papers 7636, C.E.P.R. Discussion Papers.
  5. Bijlsma, M. & Boone, J. & Zwart, G., 2012. "Competition for Traders and Risk," Discussion Paper 2012-008, Tilburg University, Center for Economic Research.
  6. Michael Haigh & John List, 2005. "Do professional traders exhibit myopic loss aversion? An experimental analysis," Artefactual Field Experiments 00052, The Field Experiments Website.
  7. Jackwerth, Jens Carsten, 2000. "Recovering Risk Aversion from Option Prices and Realized Returns," Review of Financial Studies, Society for Financial Studies, vol. 13(2), pages 433-51.
  8. Zoltan Pozsar & Tobias Adrian & Adam Ashcraft & Hayley Boesky, 2010. "Shadow banking," Staff Reports 458, Federal Reserve Bank of New York.
  9. Alex Edmans & Qi Liu, 2011. "Inside Debt," Review of Finance, European Finance Association, vol. 15(1), pages 75-102.
  10. Patrick Bolton & Hamid Mehran & Joel Shapiro, 2010. "Executive compensation and risk taking," Staff Reports 456, Federal Reserve Bank of New York.
  11. Boone, J., 2000. "Competition," Discussion Paper 2000-104, Tilburg University, Center for Economic Research.
  12. Erzo G. J. Luttmer, 2007. "Selection, Growth, and the Size Distribution of Firms," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 1103-1144, 08.
  13. Alan D. Morrison & William J. Wilhelm, 2004. "The Demise of Investment-Banking Partnerships: Theory and Evidence," OFRC Working Papers Series 2004fe14, Oxford Financial Research Centre.
  14. Dittmann, Ingolf & Maug, Ernst & Zhang, Dan, 2011. "Restricting CEO pay," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1200-1220, September.
  15. Rosenberg, Joshua V. & Engle, Robert F., 2002. "Empirical pricing kernels," Journal of Financial Economics, Elsevier, vol. 64(3), pages 341-372, June.
  16. Alex Edmans & Xavier Gabaix & Augustin Landier, 2009. "A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium," Review of Financial Studies, Society for Financial Studies, vol. 22(12), pages 4881-4917, December.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. You want to restrict bankers' pay
    by Economic Logician in Economic Logic on 2011-03-24 14:22:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Michiel Bijlsma & Gijsbert Zwart & Jan Boone, 2012. "Competition for traders and risk," CPB Discussion Paper 204, CPB Netherlands Bureau for Economic Policy Analysis.
  2. Timothy Besley & Maitreesh Ghatak, 2011. "Taxation and Regulation of Bonus Pay," STICERD - Economic Organisation and Public Policy Discussion Papers Series 030, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. Viral V. Acharya & Marco Pagano & Paolo Volpin, 2013. "Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent," NBER Working Papers 18891, National Bureau of Economic Research, Inc.
  4. John Thanassoulis, 2011. "Bankers' Pay Structure And Risk," Economics Series Working Papers 545, University of Oxford, Department of Economics.

Lists

This item is featured on the following reading lists or Wikipedia pages:
  1. Economic Logic blog

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:532

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Wise).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.