CONTROLLING BANKERS' BONUSES: EFFICIENT REGULATION OR POLITICS OF ENVY? |
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Authors: | Kent Matthews Owen Matthews |
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Institution: | Cardiff Business School |
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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 bankers' 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 an implicit too-big-to-fail policy provides the incentive for banks to take excessive risks and design compensation packages to deliver high returns. A credible no-bailout policy will have a better chance of curbing excess risk-taking than controlling bankers' compensation. |
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Keywords: | Bankers' bonuses risk-taking too-big-to-fail no-bailout policy |
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