Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88715
Authors: 
Eufinger, Christian
Gill, Andrej
Year of Publication: 
2013
Series/Report no.: 
SAFE Working Paper Series 9
Abstract: 
This paper proposes a new regulatory approach that implements capital requirements contingent on managerial compensation. We argue that excessive risk taking in the financial sector originates from the shareholder moral hazard created by government guarantees rather than from corporate governance failures within banks. The idea of the proposed regulation is to utilize the compensation scheme to drive a wedge between the interests of top management and shareholders to counteract shareholder risk-shifting incentives. The decisive advantage of this approach compared to existing regulation is that the regulator does not need to be able to properly measure the bank investment risk, which has been shown to be a difficult task during the 2008-2009 financial crisis.
Subjects: 
Basel III
capital regulation
compensation
leverage
risk
JEL: 
G21
G28
G30
G32
G38
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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