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Title:Controlling banker's bonuses: Efficient regulation or politics of envy? PDF Logo
Authors:Matthews, Kent
Matthews, Owen
Issue Date:2009
Series/Report no.:Cardiff Economics Working Papers E2009/27
Abstract:The positive relationship between bank CEO compensation and risk taking is a well established empirical fact. The global banking crisis has resulted in a chorus of demands to control banker’s bonuses and thereby curtail their risk taking activities in the hope that the world can avoid a repeat in the future. However, the positive relationship is not a causative one. In this paper we argue that the cushioning of banks downside risks provide the incentive for banks to take excessive risk and design compensation packages to deliver high returns. Macro-prudential regulation will have a better chance of curbing excess risk taking than controlling banker’s compensation.
Subjects:banker’s bonus
risk taking
too-big-to-fail
macro-prudential regulation
JEL:G21
G28
Document Type:Working Paper
Appears in Collections:Cardiff Economics Working Papers

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