CONTROLLING BANKERS' BONUSES: EFFICIENT REGULATION OR POLITICS OF ENVY?
Article first published online: 1 MAR 2010
© 2010 The Authors. Journal compilation © Institute of Economic Affairs 2010. Published by Blackwell Publishing, Oxford
Volume 30, Issue 1, pages 71–76, March 2010
How to Cite
Matthews, K. and Matthews, O. (2010), CONTROLLING BANKERS' BONUSES: EFFICIENT REGULATION OR POLITICS OF ENVY?. Economic Affairs, 30: 71–76. doi: 10.1111/j.1468-0270.2009.01977.x
- Issue published online: 1 MAR 2010
- Article first published online: 1 MAR 2010
- Bankers' bonuses;
- no-bailout policy
The positive relationship between bank CEO compensation and risk-taking is a well-established empirical fact. The global banking crisis has resulted in a chorus of demands to control bankers' bonuses and thereby curtail their risk-taking activities in the hope that the world can avoid a repeat in the future. However, the positive relationship is not a causative one. In this paper we argue that an implicit too-big-to-fail policy provides the incentive for banks to take excessive risks and design compensation packages to deliver high returns. A credible no-bailout policy will have a better chance of curbing excess risk-taking than controlling bankers' compensation.