IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Bank Pay Caps, Bank Risk, and Macroprudential Regulation

  • John Thanassoulis

This paper studies the consequences of a regulatory pay cap in proportion to assets onbank risk, bank value, and bank asset allocations. The cap is shown to lower banks' riskand raise banks' values by acting against a competitive externality in the labour market.The risk reduction is achieved without the possibility of reduced lending from a Tier 1increase. The cap encourages diversi cation and reduces the need a bank has to focus ona limited number of asset classes. The cap can be used for Macroprudential Regulationto encourage banks to move resources away from wholesale banking to the retail bankingsector. Such an intervention would be targeted: in 2009 a 20% reduction in remunerationwould have been equivalent to more than 150 basis points of extra tier 1 for UBS, forexample.

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/papers/12500/paper636.pdf
Download Restriction: no

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 636.

as
in new window

Length:
Date of creation: 17 Dec 2012
Date of revision:
Handle: RePEc:oxf:wpaper:636
Contact details of provider: Postal: Manor Rd. Building, Oxford, OX1 3UQ
Web page: http://www.economics.ox.ac.uk/
Email:


More information through EDIRC

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. Thomas Philippon & Ariell Reshef, 2012. "Wages and Human Capital in the U.S. Finance Industry: 1909--2006," The Quarterly Journal of Economics, Oxford University Press, vol. 127(4), pages 1551-1609.
  2. Bénabou, Roland & Tirole, Jean, 2012. "Bonus Culture: Competitive Pay, Screening and Multitasking," TSE Working Papers 12-367, Toulouse School of Economics (TSE), revised Mar 2013.
  3. Ing-Haw Cheng & Harrison Hong & Jose Scheinkman, 2010. "Yesterday's Heroes: Compensation and Creative Risk-Taking," NBER Chapters, in: Market Institutions and Financial Market Risk National Bureau of Economic Research, Inc.
  4. John Thanassoulis, 2011. "The Case For Intervening In Bankers' Pay," Economics Series Working Papers 532, University of Oxford, Department of Economics.
  5. Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, June.
  6. Xavier Gabaix & Augustin Landier, 2006. "Why Has CEO Pay Increased So Much?," NBER Working Papers 12365, National Bureau of Economic Research, Inc.
  7. Viral Acharya & Marco Pagano & Paolo Volpin, 2013. "Seeking Alpha - Excess Risk Taking and Competition for Managerial Talent," EIEF Working Papers Series 1303, Einaudi Institute for Economics and Finance (EIEF), revised Mar 2013.
  8. 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.
  9. Rüdiger FAHLENBRACH & René M. STULZ, . "Bank CEO Incentives and the Credit Crisis," Swiss Finance Institute Research Paper Series 09-27, Swiss Finance Institute.
  10. Christina E. Bannier & Eberhard Feess & Natalie Packham, 2013. "Competition, Bonuses, and Risk-taking in the Banking Industry," Review of Finance, European Finance Association, vol. 17(2), pages 653-690.
  11. Alan D. Morrison & William J. Wilhelm, 2008. "The Demise of Investment Banking Partnerships: Theory and Evidence," Journal of Finance, American Finance Association, vol. 63(1), pages 311-350, 02.
  12. Fabienne Llense, 2008. "French CEO Compensations: What is the Cost of a Mandatory Upper Limit?," CESifo Working Paper Series 2402, CESifo Group Munich.
  13. Pyle, David H, 1971. "On the Theory of Financial Intermediation," Journal of Finance, American Finance Association, vol. 26(3), pages 737-47, June.
  14. Hart, Oliver D & Jaffee, Dwight M, 1974. "On the Application of Portfolio Theory to Depository Financial Intermediaries," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 129-47, January.
  15. Alex Edmans & Xavier Gabaix, 2011. "The Effect of Risk on the CEO Market," Review of Financial Studies, Society for Financial Studies, vol. 24(8), pages 2822-2863.
  16. Rochet, Jean-Charles, 1992. "Capital requirements and the behaviour of commercial banks," European Economic Review, Elsevier, vol. 36(5), pages 1137-1170, June.
  17. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  18. John Thanassoulis, 2013. "Industry Structure, Executive Pay, and Short-Termism," Management Science, INFORMS, vol. 59(2), pages 402-419, June.
  19. Dean P. Foster & H. Peyton Young, 2010. "Gaming Performance Fees by Portfolio Managers," The Quarterly Journal of Economics, MIT Press, vol. 125(4), pages 1435-1458, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:636. 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)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.