Compensation Regulation in Banking: Executive Director Behavior and Bank Performance after the EU Bonus Cap
Stefano Colonnello, Michael Koetter, Konstantin Wagner
Journal of Accounting and Economics,
Nr. 1,
2023
Abstract
The regulation that caps executives’ variable compensation, as part of the Capital Requirements Directive IV of 2013, likely affected executive turnover, compensation design, and risk-taking in EU banking. The current study identifies significantly higher average turnover rates but also finds that they are driven by CEOs at poorly performing banks. Banks indemnified their executives by off-setting the bonus cap with higher fixed compensation. Although our evidence is only suggestive, we do not find any reduction in risk-taking at the bank level, one purported aim of the regulation.
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Benign Neglect of Covenant Violations: Blissful Banking or Ignorant Monitoring?
Stefano Colonnello, Michael Koetter, Moritz Stieglitz
Abstract
Theoretically, bank‘s loan monitoring activity hinges critically on its capitalisation. To proxy for monitoring intensity, we use changes in borrowers‘ investment following loan covenant violations, when creditors can intervene in the governance of the firm. Exploiting granular bank-firm relationships observed in the syndicated loan market, we document substantial heterogeneity in monitoring across banks and through time. Better capitalised banks are more lenient monitors that intervene less with covenant violators. Importantly, this hands-off approach is associated with improved borrowers‘ performance. Beyond enhancing financial resilience, regulation that requires banks to hold more capital may thus also mitigate the tightening of credit terms when firms experience shocks.
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Contracting with Heterogeneous Externalities
Shai B. Bernstein, Eyal Winter
American Economic Journal: Microeconomics,
Nr. 2,
2012
Abstract
We model situations in which a principal offers contracts to a group of agents to participate in a project. Agents' benefits from participation depend on the identity of other participating agents. We assume heterogeneous externalities and characterize the optimal contracting scheme. We show that the optimal contracts' payoff relies on a ranking, which arise from a tournament among the agents. The optimal ranking cannot be achieved by a simple measure of popularity. Using the structure of the optimal contracts, we derive results on the principal's revenue extraction and the role of the level of externalities' asymmetry.
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Die Gemeinschaftsdiagnose. Wirtschaftspolitischer Hintergrund, Methoden und Prognosegüte
Oliver Holtemöller
WiSt - Wirtschaftswissenschaftliches Studium,
Nr. 9,
2023
Abstract
In diesem Beitrag wird die Gemeinschaftsdiagnose (GD) der führenden deutschen Wirtschaftsforschungsinstitute vorgestellt. Die GD stellt eine Referenz für die den Steuerschätzungen zugrundeliegenden makroökonomischen Projektionen der Bundesregierung dar, und sie informiert wirtschaftspolitische Entscheidungsträger, Medien und die breite Öffentlichkeit über wichtige ökonomische Entwicklungen. Die Gutachten erscheinen jeweils im Frühjahr und im Herbst.
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The Impact of Risk-based Capital Rules for International Lending on Income Inequality: Global Evidence
Iftekhar Hasan, Gazi Hassan, Suk-Joong Kim, Eliza Wu
Economic Modelling,
May
2021
Abstract
This paper investigates the impact of international bank flows from G10 lender countries on income inequality in 74 borrower countries over 1999–2013. Specifically, we examine the role of international bank flows contingent upon the Basel 2 capital regulation and the level of financial market development in the borrower countries. First, we find that improvements in the borrower country risk weights due to rating upgrades under the Basel 2 framework significantly increase bank flows, leading to improvements in income inequality. Second, we find that the level of financial market development is also important. We report that a well-functioning financial market helps the poor access credit and thereby reduces inequality. Moreover, we employ threshold estimations to identify the thresholds for each of the financial development measures that borrower countries need to reach before realizing the potential reductions in income inequality from international bank financing.
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