Basel III and CEO compensation in banks: Pay structures as a regulatory signal

Christian Eufinger () and Andrej Gill

No 9, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: This paper proposes a new regulatory approach that implements capital requirements contingent on managerial compensation. We argue that excessive risk taking in the financial sector originates from the shareholder moral hazard created by government guarantees rather than from corporate governance failures within banks. The idea of the proposed regulation is to utilize the compensation scheme to drive a wedge between the interests of top management and shareholders to counteract shareholder risk-shifting incentives. The decisive advantage of this approach compared to existing regulation is that the regulator does not need to be able to properly measure the bank investment risk, which has been shown to be a difficult task during the 2008-2009 financial crisis.

Keywords: Basel III; capital regulation; compensation; leverage; risk (search for similar items in EconPapers)
JEL-codes: G21 G28 G30 G32 G38 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-acc, nep-ban, nep-cba, nep-cta and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/88715/1/775684473.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:9

DOI: 10.2139/ssrn.2231964

Access Statistics for this paper

More papers in SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().