Banks

Bankers’ bonuses claw-back clauses are critical

How big is bonuses and increases in size to bankers: Evidence from the united kingdom

The sheer scale of the income gains that the best-paid workers, and particularly financial sector workers, experienced during the period of the last decade is nearly unprecedented. Figure 1 shows the full total gains (as a share of the aggregate wage bill) likely to the very best groups within the wage distribution in the united kingdom between 1998 and 2008.

Workers in the very best 10% gained a supplementary three percentage points of the wage bill over this era. Nearly all these gains visited the most notable 1% of workers, and finance workers accounted for nearly three quarters of the gains. As opposed to previous decades, this expansion of inequality towards the top of the distribution had not been matched by rising inequality at lower levels.

Banks

Bankers’ bonuses and the financial crisis

New research on banker pay

In recent research (Gregg et al. 2011), my colleagues and I investigate whether bank executives have been incentivised to take undue risks. To get this done, we examine the pay-performance relationship of executives in every UK companies, and in financial services companies specifically. We argue that, if an focus on short-term profits in the banking sector meant that remuneration structures in banks and financial services were to be blamed for the crisis, then there must be evidence that in the run-up to the crisis pay-performance sensitivities were higher in the financial services sector than in other sectors.

Banks

Bank risk profiles and the zero lower bound

Bank portfolio risk profiles vs the zero lower bound

Johannes Bubeck, Angela Maddaloni, José-Luis Peydró 23 April 2020

Just how that banks in the euro area respond to negative central bank interest levels may be closely associated with their individual funding structure. This column shows that they don’t generally pass negative rates to their depositors, and they seek out yield by buying riskier securities. New evidence shows that their investments are directed more towards securities issued by the private sector and securities denominated in dollars.

Banks

Bank risk weights under basel are not comparable

This group of factors, which reflect intended risk weight variability, explains 56% of risk weight variance.

After controlling for risk, we investigate whether different implementation standards and supervisory practices (unintended risk weight heterogeneity) also matters. For this function, we add dummies for every country where the bank granting the loan is headquartered. Within an ideal world with equal implementation standards, these HQ fixed effects will be statistically zero.

Banks

Bankers’ bonuses and performance sensitivity

Bankers’ bonuses and performance sensitivity

Transparency at the average person asset level has already been the disclosure standard for equity funds and allows a more accurate public assessment and monitoring of bank risk. Here, the long-term benefits with regard to better risk pricing, better governance, and ultimately – better incentive systems – seem large. You will want to follow the low-hanging fruits first?

References

Admati, A R, P M DeMarzo, M F Hellwig, and P C Pfleiderer (2011), “Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity isn’t Expensive”, Rock Center for Corporate Governance at Stanford University Working Paper No. 86, MPI Collective Goods Preprint, No. 2010/42.

Banks

Bankers conflicts of interest in the interwar years new lessons for today

Bankers conflicts of interest in the interwar years new lessons for today

We begin by looking at whether our data support the theory that commercial banks and investment banks faced different sets of incentives and whether this difference in incentives led the former to less selective underwriting decisions. This claim has assumed renewed political relevance after Paul Volcker’s recent focus on the necessity to divorce commercial and investment banking once more. We find no support for the theory that commercial and investment banks behaved differently if they underwrote sovereign bonds.

Banks

Bank resolution under t-lac the aftermath

Bank resolution under t-lac the aftermath

Bank Resolution under T-LAC: The Aftermath

Charles Goodhart 24 December 2014

The Financial Stability Board’s recent consultative document proposes dividing global systemically important banks into holding companies and operating subsidiaries to be able to insulate the latter from a significant loss. This column poses the question of exactly what will happen following the holding company is liquidated or on paper so as to recapitalise the operating subsidiary – a question up to now unanswered by the Financial Stability Board.

Banks

Africa’s trade finance market facts and challenges

Africa’s trade finance market: Facts and challenges

Eugene Bempong Nyantakyi, Mouna Ben Dhaou, Lamin M Drammeh, Mouhamadou Sy 08 October 2016

Boosting Africa’s intra-regional and international trade takes a good knowledge of the African trade finance landscape, like the identification of markets where in fact the need is greatest. This column presents a few of the major patterns of the marketplace in Africa using primary survey data from commercial banks. Banks intermediate almost a third of trade activities over the continent, but nonetheless reject a substantial value of trade finance applications due mainly to weak client creditworthiness and inadequate collateral.

Banks

Africa and the trade crisis

Diagnosing crisis drivers in Africa

Impacts on the continent could be traced through, inter alia, two broad channels:

  • Reduced exports and commodity prices; and
  • Declining capital inflows.

We address each subsequently, in the process taking into consideration the broader macroeconomic impacts, and conclude with some thoughts in what this implies for Africa in light of the wider consequences for global trade.

Commodity prices and trade

African economies depend on commodity exports to create forex and fuel domestic economic growth (Table 1). This fits with the continent’s comparative advantage in resource endowments, particularly of mineral and agricultural products; the only manufacturing centre of any significance is South Africa which makes up about the bulk (a lot more than 50%) of the manufactures represented in Table 1.

Banks

Adverse selection and moral hazard in japanese credit guarantees

Adverse selection and moral hazard in japan public credit guarantee schemes for SMEs

Kuniyoshi Saito, Daisuke Tsuruta 14 November 2014

In Japan, loans with 100% guarantees take into account more than half of most loans included in public credit guarantee schemes, but banks declare that they don’t offer loans without sufficient screening and monitoring even if the loans are guaranteed. This column presents proof adverse selection and moral hazard in Japanese credit guarantee schemes. The problem is less severe for loans with 80% guarantees.