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Bank executive compensation and risk-taking

Author

Listed:
  • Gaston Gelos
  • Bertrand Rime
  • Kevin Tracol

Abstract

This article investigates the evolution of bank compensation practices since the Great Financial Crisis (GFC) and how it relates to bank risk. Despite the lessons learned from the GFC, performance metrics for bank executives generally do not account for risk. EU regulation requiring banks to extend their deferral horizons has reduced risk-taking. By contrast, our evidence is not conclusive regarding restrictions on the share of variable compensation. A case study of the 2023 banking turmoil indicates that bank governance failed to ensure that compensation schemes accounted for risk-taking, to recognise the deterioration of performance and to adjust compensation accordingly.

Suggested Citation

  • Gaston Gelos & Bertrand Rime & Kevin Tracol, 2026. "Bank executive compensation and risk-taking," BIS Quarterly Review, Bank for International Settlements, September.
    • Handle: RePEc:bis:bisqtr:2609c
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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