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Banker's Pay Structure And Risk (Thanassoulis J.)

Bank Managers

Abstract This paper studies the contracting problem between banks and their bankers, embedded in a competitive labour market for banker talent. To motivate effort banks must use some variable remuneration. Such remuneration introduces a risk-shifting problem by creating incentives to inflate early earnings: to manage this some bonus pay is optimally deferred. As competition between banks for bankers rises it becomes more expensive to manage the risk-shifting problem than the moral hazard problem. If competition grows strong enough, contracts which permit some risk-shifting become optimal. Empirically I demonstrate that balance sheets have changed in a manner which triggers this mechanism.
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Libref/ Thanassoulis J. (2011) "Banker's Pay Structure And Risk", University of Oxford Department of Economics Discussion Paper No. 545, pp. 1 - 51
© Программирование — Александр Красильников, 2008
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