How Are Bankers Paid?

The dark side of liquidity creation: Leverage and systemic risk

Benjamin Bennett, Radhakrishnan Gopalan and Anjan Thakor

The Review of Corporate Finance Studies, 2021, vol. 10, issue 4, 788-812

Abstract: We empirically examine bank CEOs’ compensation. We find that bank CEOs (a) are paid less than their nonfinancial counterparts, an effect driven by the CEOs of small bank; (b) experienced declining compensation during 2007–2009 (the hardest-hit banks cut compensation more) but pay is now 24% higher than precrisis levels; (c) are paid more at larger banks, those with less nonperforming loans, those with a higher proportion of noninterest income, and those with less demand-deposit dependence; and (d) have pay highly sensitive to ROA and ROE, but not stock returns. Tail risk is higher when compensation depends more on short-term measures of performance. (JEL, F34, G32, G33, G38, K42)

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:oup:rcorpf:v:10:y:2021:i:4:p:788-812.

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