The Case for Intervening in Bankers' Pay (Thanassoulis J. E.)

Bank Managers Regulation

Abstract This paper assesses the arguments behind calls to intervene in the pay of bankers with a view to reducing banks' default risk. We develop a model of banker remuneration in a competitive market for banker talent. Competing banks prefer to pay their banking staff in bonuses and not in wages as risk sharing on the remuneration bill is valuable. We explore caps on bonuses (Basel III, new EU regulations), taxation (France and UK bonus tax), bank size caps and capital buffers. We study the impact of each policy on market remuneration and bank risk. Empirical evidence on bankers' remuneration is discussed.
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Libref/ Thanassoulis J. E. (2010) "The Case for Intervening in Bankers' Pay", pp. 1 - 53
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