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Title:Bank Bonuses and Bail-out Guarantees PDF Logo
Authors:Hakenes, Hendrik
Schnabel, Isabel
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Causes and Consequences of Bank Bail-Outs D7-V2
Abstract:This paper analyzes how a bank shareholder optimally designs the compensation scheme of a bank manager if there are agency problems between the shareholder and the manager, and how this design changes in reaction to anticipated bail-outs. If there is a problem of excessive risk-taking, bail-out guarantees lead to steeper compensation schemes and even more risk-taking. If there is an effort problem, the compensation scheme becomes flatter and effort decreases. If both types of agency problems are present, a sufficiently large increase in bail-out perceptions will make it optimal for a welfare-maximizing regulator to impose ceilings on bank bonuses.
Subjects:Bonus payments
bail-out guarantees
bank manager compensation
JEL:G21
G28
M52
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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