The Case For Intervening In Bankers' Pay
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.
|Date of creation:||01 Feb 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.economics.ox.ac.uk/
More information through EDIRC
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.:
- Jens Carsten Jackwerth., 1996.
"Recovering Risk Aversion from Option Prices and Realized Returns,"
Research Program in Finance Working Papers
RPF-265, University of California at Berkeley.
- 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.
- Jens Carsten Jackwerth, 1998. "Recovering Risk Aversion from Option Prices and Realized Returns," Finance 9803002, EconWPA.
- Pozsar, Zoltan & Adrian, Tobias & Ashcraft, Adam B. & Boesky, Hayley, 2013.
Economic Policy Review,
Federal Reserve Bank of New York, issue Dec, pages 1-16.
- Fabienne Llense, 2008.
"French CEO Compensations: What is the Cost of a Mandatory Upper Limit?,"
CESifo Working Paper Series
2402, CESifo Group Munich.
- 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.
- Xavier Gabaix & Augustin Landier, 2006.
"Why Has CEO Pay Increased So Much?,"
2006 Meeting Papers
518, Society for Economic Dynamics.
- John List & Michael Haigh, 2005.
"Do professional traders exhibit myopic loss aversion? An experimental analysis,"
Artefactual Field Experiments
00052, The Field Experiments Website.
- Michael S. Haigh & John A. List, 2005. "Do Professional Traders Exhibit Myopic Loss Aversion? An Experimental Analysis," Journal of Finance, American Finance Association, vol. 60(1), pages 523-534, 02.
- Haigh, Michael S. & List, John A., 2002. "Do Professional Traders Exhibit Myopic Loss Aversion? An Experimental Analysis," Working Papers 28554, University of Maryland, Department of Agricultural and Resource Economics.
- Volker Nocke & John Thanassoulis, 2014.
"Vertical Relations Under Credit Constraints,"
Journal of the European Economic Association,
European Economic Association, vol. 12(2), pages 337-367, 04.
- Rosenberg, Joshua V. & Engle, Robert F., 2002.
"Empirical pricing kernels,"
Journal of Financial Economics,
Elsevier, vol. 64(3), pages 341-372, June.
- Joshua Rosenberg & Robert F. Engle, 2000. "Empirical Pricing Kernels," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-014, New York University, Leonard N. Stern School of Business-.
- Dittmann, Ingolf & Maug, Ernst & Zhang, Dan, 2011. "Restricting CEO pay," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1200-1220, September.
- 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.
- Boone, Jan, 2000.
CEPR Discussion Papers
2636, C.E.P.R. Discussion Papers.
- Alex Edmans & Qi Liu, 2011. "Inside Debt," Review of Finance, European Finance Association, vol. 15(1), pages 75-102.
- 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.
- 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.
- Patrick Bolton & Hamid Mehran & Joel Shapiro, 2010. "Executive compensation and risk taking," Staff Reports 456, Federal Reserve Bank of New York.
When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:532. 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: (Caroline Wise)The email address of this maintainer does not seem to be valid anymore. Please ask Caroline Wise to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.