Executive Compensation and Systemic Risk: The Role of Non-Interest Income and Wholesale Funding
AbstractThis paper analyzes whether the excessive overreliance on non-interest income and wholesale funding, which occurred in the banking industry during the last two decades and led to increases in systemic risk, could arise from the desire of bank managers to increase their variable compensation. Using a sample of U.S. bank holding companies during 1995 to 2010, our results show that non-interest income is positively associated to a larger proportion of variable compensation. Also, while exercised options are more sensitive to income trading activities, bonuses tend to be related to the revenues originated from investment banking and venture capital activities. Similarly, a greater reliance on short-term wholesale funding positively associates with higher levels of variable compensation and bonuses. After the financial crisis, variable compensation and bonuses increased with non-interest income, but decreased with the use of short-term wholesale funding.
Download InfoIf 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.
Bibliographic InfoPaper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 04/12.
Length: 36 pages
Date of creation: 23 Oct 2012
Date of revision:
Contact details of provider:
Web page: http://www.unav.es/facultad/econom
Non-interest income; executive compensation; financial crisis; wholesale funding;
Find related papers by JEL classification:
- C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
- G01 - Financial Economics - - General - - - Financial Crises
- G20 - Financial Economics - - Financial Institutions and Services - - - General
This paper has been announced in the following NEP Reports:
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.:
- Jonah B. Gelbach & Doug Miller, 2009.
"Robust Inference with Multi-way Clustering,"
99, University of California, Davis, Department of Economics.
- A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2006. "Robust Inference with Multi-way Clustering," NBER Technical Working Papers 0327, National Bureau of Economic Research, Inc.
- A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller & Doug Miller, 2009. "Robust Inference with Multi-way Clustering," Working Papers 98, University of California, Davis, Department of Economics.
- Donald P. Morgan, 2002. "Rating Banks: Risk and Uncertainty in an Opaque Industry," American Economic Review, American Economic Association, vol. 92(4), pages 874-888, September.
- zhang, zhichao & Xie, Li & lu, xiangyun & zhang, zhuang, 2014. "Determinants of financial distress in u.s. large bank holding companies," MPRA Paper 53545, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.