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Controlling banker’s bonuses: efficient regulation or politics of envy?

Matthews, Kent Gerard Patrick and Matthews, Owen 2010. Controlling banker’s bonuses: efficient regulation or politics of envy? Economic Affairs 30 (1) , pp. 71-76. 10.1111/j.1468-0270.2009.01977.x

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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.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
H Social Sciences > HJ Public Finance
J Political Science > JN Political institutions (Europe) > JN101 Great Britain
Uncontrolled Keywords: Bankers' bonuses ; Risk-taking ; Too-big-to-fail ; No-bailout policy
Publisher: Wiley-Blackwell
ISSN: 0265-0665
Last Modified: 04 Jun 2017 03:12
URI: http://orca.cf.ac.uk/id/eprint/17985

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