The external effects of bank executive pay: Liquidity creation and systemic risk |
| |
| Affiliation: | 1. University of Kansas, Lawrence, KS 66045, USA;2. University of Louisville, Louisville, KY 40292, USA;1. D’Amore-McKim School of Business, Northeastern University, USA;2. Olin Business School, Washington University in St. Louis, USA;1. Bank of Canada, 234 Wellington St, Ottawa, ON K1A 0G9, Canada;2. Centre for Economic Policy Research, London, United Kingdom;1. Banco de Portugal, Economics and Research Department, Av, Almirante Reis 71, 1150-015 Lisbon, Portugal;1. Federal Reserve Board, Division of Monetary Affairs, Board of Governors of the Federal Reserve System, USA;2. Robert Day School of Economics and Finance, Claremont McKenna College, USA;1. Yale School of Management and NBER;2. AQR Capital |
| |
| Abstract: | We develop a conceptual framework that links the compensation incentives of bank executives to the risk and return externalities generated by banks but borne by society. Using 1994 to 2016 data from large U.S. commercial banks, we find that CEO pay-performance incentives reduce both negative systemic risk externalities and positive liquidity creation externalities, while pay-risk incentives increase both externalities. Our findings offer support for Federal Reserve guidelines that encourage greater reliance on long-term equity-based compensation, and they infer a regulatory tradeoff: Bank executive pay rules aimed at reducing systemic risk will result in reduced system-wide liquidity creation as well. |
| |
| Keywords: | |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
