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.
| Original language | English |
|---|---|
| Pages (from-to) | 71-76 |
| Number of pages | 6 |
| Journal | Economic Affairs |
| Volume | 30 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - Mar 2010 |
| Externally published | Yes |
Keywords
- Bankers' bonuses
- No-bailout policy
- Risk-taking
- Too-big-to-fail
ASJC Scopus subject areas
- Geography, Planning and Development
- Development
- Aerospace Engineering
