Thanassoulis, John (2014) Bank pay caps, bank risk, and macroprudential regulation. Journal of Banking & Finance, Volume 48 . pp. 139-151. doi:10.1016/j.jbankfin.2014.04.004

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Abstract

This paper studies the consequences of a regulatory pay cap in proportion to assets on bank risk, bank value, and bank asset allocations. The cap is shown to lower banks’ risk and raise banks’ values by acting against a competitive externality in the labour market. The risk reduction is achieved without the possibility of reduced lending from a Tier 1 increase. The cap encourages diversification and reduces the need a bank has to focus on a limited number of asset classes. The cap can be used for Macroprudential Regulation to encourage banks to move resources away from wholesale banking to the retail banking sector. Such an intervention would be targeted: in 2009 a 20% reduction in remuneration would have been equivalent to more than 150 basis points of extra Tier 1 for UBS, for example.

Item Type:	Journal Article
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH):	Banks and banking -- Law and legislation, Bankers, Income, Bonuses (Employee fringe benefits)
Journal or Publication Title:	Journal of Banking & Finance
Publisher:	Elsevier Science BV
ISSN:	0378-4266
Official Date:	November 2014
Dates:	Date Event November 2014 Published 19 April 2014 Available 3 April 2014 Accepted 13 June 2013 Submitted
Volume:	Volume 48
Page Range:	pp. 139-151
DOI:	10.1016/j.jbankfin.2014.04.004
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access

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