Bank capital requirements and mandatory deferral of compensation

Eberhard Feess () and Ansgar Wohlschlegel

Journal of Regulatory Economics, 2018, vol. 53, issue 2, No 4, 206-242

Abstract: Abstract We analyze the interplay of capital requirements and mandatory deferral of compensation in reducing banks’ risk taking incentives. Two heterogenous banks fund uncorrelated projects with fully diversifiable risk or correlated projects with systematic risk. One of both banks can identify project types and is superior at managing risks. If projects are in abundant supply, full mandatory deferral of compensation is optimal as it allows a larger banking sector without increasing the default risk. With limited supply of projects, deferred compensation may misallocate risky projects to the bank that is inferior at managing risks, so that early compensation may be optimal.

Keywords: Bank regulation; Capital requirements; Mandatory deferral of compensation (search for similar items in EconPapers)
JEL-codes: D62 G21 G28 J33 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s11149-018-9352-3 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Bank Capital Requirements and Mandatory Deferral of Compensation (2014)
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:kap:regeco:v:53:y:2018:i:2:d:10.1007_s11149-018-9352-3

Ordering information: This journal article can be ordered from
http://www.springer. ... on/journal/11149/PS2

DOI: 10.1007/s11149-018-9352-3

Access Statistics for this article

Journal of Regulatory Economics is currently edited by Menaham Spiegel

More articles in Journal of Regulatory Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().