A Theory of Bank Regulation and Management Compensation
This paper examines the incentive structure underlying the current features of bank regulation. We show that capital regulation has limited effectiveness, given the observed high leverage ratios of banks. We propose instead a more direct and effective mechanism of influencing incentives through the role of top-management compensation, whereby a fair and revenue-neutral FDIC premium incorporates incentive features of top-management compensation. With this pricing scheme (for FDIC insurance), we show that bank owners choose an optimal management compensation structure which induces first-best value-maximizing investment choices by a bank's management. We also characterize the parameters of the optimal managerial compensation structure and the FDIC premium schedule explicitly.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||May 1998|
|Date of revision:|
|Contact details of provider:|| Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126|
Phone: (212) 998-0100
Web page: http://w4.stern.nyu.edu/finance/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:fth:nystfi:98-043. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If references are entirely missing, you can add them using this form.