Download or read book Bank CEO Compensation Bank Risks and the Financial Crisis Effect written by Damion McIntosh and published by . This book was released on 2011 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: The market consensus during the financial crisis was that financial sector CEOs were engaged in excessive risk taking induced by compensation practices. Thus, the primary focus of this paper is to determine whether empirical evidence supports this assertion. As such, the author examines bank CEO compensation, bank risks, and the relation between bank CEO risk taking incentives and bank risks and the effect of the 2007/9 financial crisis on this relation. After adjusting for the simultaneity bias between bank CEOs' risk taking incentives (measured by the sensitivity of CEO option portfolio and pay for performance sensitivity) and bank risks (using accounting and market based measures), the author's findings reveal significant shifts in the relation between compensation and bank risks during the financial crisis. Specifically, during the financial crisis, CEOs with more sensitive pay for performance were related to banks with greater capital risk, and banks with higher portfolio risk had CEOs with more sensitive pay for performance. Also, banks with greater total and unsystematic risks during the financial crisis had CEOs with less risk taking incentives. Other indicators during the financial crisis show that less stable banks had CEOs with less risk taking incentives, while banks with greater asset return risk had CEOs with less sensitive option portfolios. Overall, these results do not support the risk inducing incentives of bank CEO compensation especially during the financial crisis.

Download or read book CEO Compensation and Risk Taking in Banking Industry written by Thi Phuong Mai Le and published by . This book was released on 2015 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The 2008 financial crisis was largely caused by excessive risk-taking of banks fromthe U.S. and also from all over the world, which have been in big trouble since then. One ofthe major questions raised by scientists and regulators is the role of executive remunerationmethods in encouraging bank risk-taking. We conduct this research to investigate whether thebanks' executive compensation payment mechanisms induced risk-taking and contributed tothe financial crisis. We analyze separately the impact of each component of CEOcompensation, which include CEO salary, CEO bonus, CEO other annual compensation,percentage of CEO salary, percentage of CEO bonus, percentage of other annualcompensation and equity-based compensation, on risk-taking in the banking sector. We alsotry to identify more specifically the possible responsibility of each remuneration method intriggering the financial crisis and the manifestations of bank risk in the first two years ofcrisis. Different measures of bank risk include total risk, systematic risk, idiosyncratic risk,loan loss provision to total loan ratio, non-performing loan to total loan ratio, distance-todefaultmeasured by Z-score, sharp drop in bank stock price, the change in bank ratings andthe change in CDS during the crisis period. Using a sample of 63 large banks in Europe,Canada and United States from 2004 to 2008 we find that both CEO salary and CEO bonusdecrease with most types of bank risk, CEO other annual compensation increases with bankrisk. These components of CEO compensation are illustrated to have no relationship to thechange of bank risk during the crisis. Regarding the CEO equity-based compensation, we findthat usage of restricted stock to compensate CEO during the pre-crisis period has no effect onany abnormal changes in bank risks during the crisis period, whereas usage of stock option tocompensate CEO in the same period augments the manifestations of bank risk in the crisis.

Download or read book Bank CEOs written by Claudia Curi and published by Springer. This book was released on 2018-05-22 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book thoroughly explores the characteristics and importance of bank CEOs against the backdrop of growing awareness of the social implications of CEO behavior for the performance and stability of the financial and economic system. After an introductory section on the relevance of CEOs in the banking industry, the connections between the bank CEO labor market, contractual incentives, and compensation structures are examined. The focus then turns to empirical findings concerning the impact that bank CEO compensation has on various firm-level outcomes, such as bank performance and strategies. In addition, the relation between CEO turnover and changes in compensation policies since the financial crisis is discussed. A concluding section presents some fresh empirical evidence deriving from an up-to-date database of traits of CEOs operating in the largest European banks. For PhD students and academics, the surveys offer detailed roadmaps on the empirical research landscape and provide suggestions for future work. The writing style ensures that the content will be readily accessible to all industry practitioners.

Download or read book Executive Compensation and Business Policy Choices at U S Commercial Banks written by Robert DeYoung and published by DIANE Publishing. This book was released on 2010-08 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines whether and how the terms of CEO compensation contracts at large commercial banks between 1994 and 2006 influenced, or were influenced by, the risky business policy decisions made by these firms. The authors find strong evidence that bank CEOs responded to contractual risk-taking incentives by taking more risk; bank boards altered CEO compensation to encourage executives to exploit new growth opportunities; and bank boards set CEO incentives in a manner designed to moderate excessive risk-taking. These relationships are strongest during the second half of the author¿s sample, after deregulation and technological change had expanded banks' capacities for risk-taking. Charts and tables.

Download or read book Executive Compensation in Imperfect Financial Markets written by Jay Cullen and published by Edward Elgar Publishing. This book was released on 2014-10-23 with total page 259 pages. Available in PDF, EPUB and Kindle. Book excerpt: This important book discusses the issue of executive compensation in Anglo-American financial markets following the financial crisis. The book begins by contextualizing the problem facing financial institutions in the US and the UK and argues that appr

Download or read book Pay Without Performance written by Lucian A. Bebchuk and published by Harvard University Press. This book was released on 2004 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt: The company is under-performing, its share price is trailing, and the CEO gets...a multi-million-dollar raise. This story is familiar, for good reason: as this book clearly demonstrates, structural flaws in corporate governance have produced widespread distortions in executive pay. Pay without Performance presents a disconcerting portrait of managers' influence over their own pay--and of a governance system that must fundamentally change if firms are to be managed in the interest of shareholders. Lucian Bebchuk and Jesse Fried demonstrate that corporate boards have persistently failed to negotiate at arm's length with the executives they are meant to oversee. They give a richly detailed account of how pay practices--from option plans to retirement benefits--have decoupled compensation from performance and have camouflaged both the amount and performance-insensitivity of pay. Executives' unwonted influence over their compensation has hurt shareholders by increasing pay levels and, even more importantly, by leading to practices that dilute and distort managers' incentives. This book identifies basic problems with our current reliance on boards as guardians of shareholder interests. And the solution, the authors argue, is not merely to make these boards more independent of executives as recent reforms attempt to do. Rather, boards should also be made more dependent on shareholders by eliminating the arrangements that entrench directors and insulate them from their shareholders. A powerful critique of executive compensation and corporate governance, Pay without Performance points the way to restoring corporate integrity and improving corporate performance.

Download or read book The Impact of Bank Merger Growth on CEO Compensation written by Zhian Chen and published by . This book was released on 2017 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the impact of bank mergers on chief executive officer (CEO) compensation during 1992-2014, a period characterised by significant banking consolidation. We show that CEO compensation is positively related to both merger growth and non-merger internal growth, with the former relation being higher in magnitude. While CEO pay-risk sensitivity is not significantly related to merger growth, CEO pay-performance sensitivity is negatively and significantly related to merger growth. Collectively, our results suggest that, through bank mergers, CEOs can earn higher compensation and decouple personal wealth from bank performance. Furthermore, we document a more severe agency problem in CEO compensation as a consequence of bank mergers relative to mergers in industrial firms. Finally, we find that the post-financial crisis regulatory reform of executive compensation in banks has limited effectiveness in curbing the merger-pay links.

Download or read book The Bankers New Clothes written by Anat Admati and published by Princeton University Press. This book was released on 2024-01-09 with total page 624 pages. Available in PDF, EPUB and Kindle. Book excerpt: A Wall Street Journal, Financial Times, and Bloomberg Businessweek Book of the Year Why our banking system is broken—and what we must do to fix it New bank failures have been a rude awakening for everyone who believed that the banking industry was reformed after the Global Financial Crisis—and that we’d never again have to choose between massive bailouts and financial havoc. The Bankers’ New Clothes uncovers just how little things have changed—and why banks are still so dangerous. Writing in clear language that anyone can understand, Anat Admati and Martin Hellwig debunk the false and misleading claims of bankers, regulators, politicians, academics, and others who oppose effective reform, and they explain how the banking system can be made safer and healthier. Thoroughly updated for a world where bank failures have made a dramatic return, this acclaimed and important book now features a new preface and four new chapters that expose the shortcomings of current policies and reveal how the dominance of banking even presents dangers to the rule of law and democracy itself.

Download or read book Bank Executive Compensation Structure Risk Taking and the Financial Crisis written by Lin Guo and published by . This book was released on 2014 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates (1) how the composition of executive compensation is related to a bank's incentive to take excessive risk, (2) whether executive compensation in larger banks, especially the too-big-to-fail (TBTF) banks, induces more severe moral hazard behavior, and (3) how the relation between bank executive compensation and risk taking changes before and during the recent financial crisis. We find that bank risk measured by the Z-score and the volatility of stock returns increases with both the percentages of short-term and long-term incentive compensation. However, greater proportion of incentive pay decreases the likelihood for a bank to become a problem or failed institution. This result holds for the periods before and during the recent financial crisis. The distress-mitigating effects of incentive compensation are further confirmed by our finding that both the proportions of bonus and long-term incentives are positively related to bank valuation and performance. Interestingly, we find that TBTF banks experience greater risk taking (lower Z-score) and are more likely to be in financial distress than smaller banks. However, greater incentive compensation in TBTF banks helps reduce their insolvency risk relative to smaller institutions.

Download or read book Paying for Risk Bankers Compensation and Competition written by Simone M. Sepe and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Efforts to control bank risk address the wrong problem in the wrong way. They presume that the financial crisis was caused by CEOs who failed to supervise risk-taking employees. The responses focus on executive pay, believing that executives will bring non-executives into line-using incentives to manage risk-taking-once their own pay is regulated. What they overlook is the effect on non-executive pay of the competition for talent. Even if executive pay is regulated, and executives act in the bank's best interests, they will still be trapped into providing incentives that encourage risk-taking by non-executives due to the negative externality that arises from that competition. Greater risk-taking can increase short-term profits and, in turn, the amount a non-executive receives, potentially at the expense of long-term bank value. Non-executives, therefore, have an incentive to incur significant risk upfront so long as they can depart for a new employer before any losses materialize. The result is an upward spiral in compensation-reducing an executive's ability to set non-executive pay and the ability of any one bank to adjust compensation to reflect risk-taking and long-term outcomes. New regulation must address the tension between compensation and competition. Regulators should take account of the effect of competition on market-wide levels of pay, including by non-banks who compete for talent. The ability of non-executives to jump from a bank employer to another financial firm should also be limited. In addition, banks should be required to include a long-term equity component in non-executive pay, with subsequent employers being restricted from compensating a new employee for any losses she incurs related to her prior work.

Download or read book The Real Effects of CEO Compensation written by Jing Luo and published by Open Dissertation Press. This book was released on 2017-01-27 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation, "The Real Effects of CEO Compensation: Evidence From Equity and Bonus Incentive Plans" by Jing, Luo, 羅婧, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: This thesis consists of two essays exploring the effects of executive compensation contracts on the real economy. Evidence from equity incentive schemes and annual bonus plans are provided separately in the two essays. The first essay examines the relation between CEO option compensation and bank risk-taking, and the role of CEO option compensation in affecting bank performance during the 2007-2008 financial crisis. Through panel regressions, I find that over the sample period (1993-2011), option awards received by bank CEO and CEO option holdings lead to higher bank risk which is not rewarded by better performance. Bank CEOs take more risk by engaging more in financial innovation and maintaining more risky loan portfolios. Institutional investors favor high option compensation in their own interests of pursuing short-term stock price upswing, while a larger board corrects this excessive risk-taking by providing bank CEOs with less option compensation. Cross-sectional evidence shows that during the crisis period, the effect of option compensation in increasing risk-taking and worsening performance comes from exercisable option holdings. In addition to the findings regarding option compensation, stock awards are shown to affect bank risk and performance, while stock holdings play no role. In the second essay, using a hand collected sample of 1491 firm-years spanning 2006-2011, for which I have been able to gather from annual incentive schemes performance measures and two levels of corresponding targets which represent board directors' performance expectations on chief executive officers (CEOs), I discover that the probability of CEO turnover significantly increases when a firm fails to meet its performance targets, and the likelihood of CEO replacement becomes even higher when minimum performance targets are missed. In a horse race of various financial measures used, failure to meet earnings targets most significantly increases the likelihood of CEO dismissal, and cash flow matters most when minimum targets are considered. Further, the effect varies with firm characteristics in that failing to meet revenue targets lead to turnover only in growth firms, while only in distressed firms CEOs are more likely to lose the job because of missing cash flow targets. Results are robust to the control of possible selection issues related to performance target disclosure and the choice of financial measures. Subjects: Executives - Salaries, etc

Download or read book The Financial Crisis Inquiry Report written by Financial Crisis Inquiry Commission and published by Cosimo, Inc.. This book was released on 2011-05-01 with total page 692 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Financial Crisis Inquiry Report, published by the U.S. Government and the Financial Crisis Inquiry Commission in early 2011, is the official government report on the United States financial collapse and the review of major financial institutions that bankrupted and failed, or would have without help from the government. The commission and the report were implemented after Congress passed an act in 2009 to review and prevent fraudulent activity. The report details, among other things, the periods before, during, and after the crisis, what led up to it, and analyses of subprime mortgage lending, credit expansion and banking policies, the collapse of companies like Fannie Mae and Freddie Mac, and the federal bailouts of Lehman and AIG. It also discusses the aftermath of the fallout and our current state. This report should be of interest to anyone concerned about the financial situation in the U.S. and around the world.THE FINANCIAL CRISIS INQUIRY COMMISSION is an independent, bi-partisan, government-appointed panel of 10 people that was created to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." It was established as part of the Fraud Enforcement and Recovery Act of 2009. The commission consisted of private citizens with expertise in economics and finance, banking, housing, market regulation, and consumer protection. They examined and reported on "the collapse of major financial institutions that failed or would have failed if not for exceptional assistance from the government."News Dissector DANNY SCHECHTER is a journalist, blogger and filmmaker. He has been reporting on economic crises since the 1980's when he was with ABC News. His film In Debt We Trust warned of the economic meltdown in 2006. He has since written three books on the subject including Plunder: Investigating Our Economic Calamity (Cosimo Books, 2008), and The Crime Of Our Time: Why Wall Street Is Not Too Big to Jail (Disinfo Books, 2011), a companion to his latest film Plunder The Crime Of Our Time. He can be reached online at www.newsdissector.com.

Download or read book Engineering the Financial Crisis written by Jeffrey Friedman and published by University of Pennsylvania Press. This book was released on 2011-09-01 with total page 224 pages. Available in PDF, EPUB and Kindle. Book excerpt: The financial crisis has been blamed on reckless bankers, irrational exuberance, government support of mortgages for the poor, financial deregulation, and expansionary monetary policy. Specialists in banking, however, tell a story with less emotional resonance but a better correspondence to the evidence: the crisis was sparked by the international regulatory accords on bank capital levels, the Basel Accords. In one of the first studies critically to examine the Basel Accords, Engineering the Financial Crisis reveals the crucial role that bank capital requirements and other government regulations played in the recent financial crisis. Jeffrey Friedman and Wladimir Kraus argue that by encouraging banks to invest in highly rated mortgage-backed bonds, the Basel Accords created an overconcentration of risk in the banking industry. In addition, accounting regulations required banks to reduce lending if the temporary market value of these bonds declined, as they did in 2007 and 2008 during the panic over subprime mortgage defaults. The book begins by assessing leading theories about the crisis—deregulation, bank compensation practices, excessive leverage, "too big to fail," and Fannie Mae and Freddie Mac—and, through careful evidentiary scrutiny, debunks much of the conventional wisdom about what went wrong. It then discusses the Basel Accords and how they contributed to systemic risk. Finally, it presents an analysis of social-science expertise and the fallibility of economists and regulators. Engagingly written, theoretically inventive, yet empirically grounded, Engineering the Financial Crisis is a timely examination of the unintended—and sometimes disastrous—effects of regulation on complex economies.

Download or read book Financial Crisis Corporate Governance and Bank Capital written by Sanjai Bhagat and published by Cambridge University Press. This book was released on 2017-03-10 with total page 259 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the aftermath of the 2007–8 crisis, senior policymakers and the media have blamed excessive risk-taking undertaken by bank executives, in response to their compensation incentives, for the crisis. The inevitable follow-up to this was to introduce stronger financial regulation, in the hope that better and more ethical behaviour can be induced. Despite the honourable intentions of regulation, such as the Dodd–Frank Act of 2010, it is clear that many big banks are still deemed too big to fail. This book argues that by restructuring executive incentive programmes to include only restricted stock and restricted stock options with very long vesting periods, and financing banks with considerably more equity, the potential of future financial crises can be minimized. It will be of great value to corporate executives, corporate board members, institutional investors and economic policymakers, as well as graduate and undergraduate students studying finance, economics and law.

Download or read book After the Crash written by Richard Herring and published by Brookings Institution Press. This book was released on 2010 with total page 161 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Examines the ramifications of the 2007-08 financial crisis on the financial services industry and some of its practices and how these are likely to change in the future"--Provided by publisher.

Download or read book Managerial Compensation Regulation and Risk in Banks written by Vittoria Cerasi and published by . This book was released on 2014 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the relation between CEOs monetary incentives, financial regulation and risk in banks. We present a model where banks lend to opaque entrepreneurial projects to be monitored by managers; managers are remunerated according to a pay-for-performance scheme and their effort is unobservable to depositors and shareholders. Within a prudential regulatory framework that defines a capital requirement and a deposit insurance, we study the effect of increasing the variable component of managerial compensation on risk taking. We then test empirically how monetary incentives provided to CEOs in 2006 affected banks' stock price and volatility during the 2007-2008 financial crisis on a sample of large banks around the World. The cross-country dimension of our sample allows us to study the interaction between CEO incentives and financial regulation. The empirical analysis suggests that the sensitivity of CEOs equity portfolios to stock prices and volatility has been indeed related to worse performance in countries with explicit deposit insurance and weaker monitoring by shareholders. This evidence is coherent with the main prediction of the model, that is, the variable part of the managerial compensation, combined with weak insiders' monitoring, exacerbates the risk-shifting attitude by managers.

Download or read book Crisis and Response written by Federal Deposit Insurance Corporation and published by . This book was released on 2018-03-06 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Crisis and Response: An FDIC History, 2008¿2013 reviews the experience of the FDIC during a period in which the agency was confronted with two interconnected and overlapping crises¿first, the financial crisis in 2008 and 2009, and second, a banking crisis that began in 2008 and continued until 2013. The history examines the FDIC¿s response, contributes to an understanding of what occurred, and shares lessons from the agency¿s experience.