Thanassoulis, John (2012) The case for intervening in bankers’ pay. The Journal of Finance , Volume 67 (Number 3). pp. 849-895. doi:10.1111/j.1540-6261.2012.01736.x ISSN 0022-1082.

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Abstract

This paper studies the default risk of banks generated by investment and remuneration pressures. Competing banks prefer to pay their banking staff in bonuses and not in fixed wages as risk sharing on the remuneration bill is valuable. Competition for bankers generates a negative externality, driving up market levels of banker remuneration and hence rival banks’ default risk. Optimal financial regulation involves an appropriately structured limit on the proportion of the balance sheet used for bonuses. However, stringent bonus caps are value destroying, default risk enhancing, and suboptimal for regulators who control only a small number of banks.

Item Type:	Journal Article
Divisions:	Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School
Journal or Publication Title:	The Journal of Finance
Publisher:	Wiley-Blackwell Publishing, Inc.
ISSN:	0022-1082
Official Date:	June 2012
Dates:	Date Event June 2012 Published
Volume:	Volume 67
Number:	Number 3
Number of Pages:	46
Page Range:	pp. 849-895
DOI:	10.1111/j.1540-6261.2012.01736.x
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
Funder:	Economic and Social Research Council of the United Kingdom
Grant number:	RES-000-22-3468

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