Paying for Risk
Report

Paying for Risk

Bankers, Compensation, and Competition

Simone M. Sepe and Charles K. Whitehead
Center for Financial Studies, 2014
Get the Report

Read or listen offline

Amazon Kindle
automatisch generiertes Audio
  • 0.5×
  • 0.75×
  • 1×
  • 1.25×
  • 1.5×
  • 1.75×
1×
automatisch generiertes Audio

Editorial Rating

7

Qualities

  • Innovative
  • Overview
  • Background

Recommendation

In the rush to crack down on banks’ risk taking after the 2007–2009 financial crisis, politicians and regulators focused on precisely the wrong issue: They restricted pay for bank executives while ignoring the reality that lower-level staff, rather than executives, actually take on the risk. According to legal experts Simone M. Sepe and Charles K. Whitehead, in a competitive market for talent, those employees can sell their services to rival institutions, moving on before their risky bets collapse. getAbstract recommends their report on bank compensation to policy makers, finance leaders and human resources professionals looking to link risk and pay.

Summary

After the 2007–2009 financial crisis, authorities misguidedly focused on limiting pay for bank executives, though nonexecutives are the real risk takers. Consider Bruno Iksil, JPMorgan’s trader who earned $6.76 million in 2011 but lost the bank $6.2 billion in 2012, and Goldman Sachs’s Fabrice Tourre, who sold the deceptive 2007 Abacus subprime collateralized debt obligations. Neither was an executive, but both engaged in speculative transactions that earned great upfront returns but that caused huge losses in the long run.

Bankers’ remuneration has shot up due to competition for talent. After...

About the Authors

Simone M. Sepe is an associate professor of law at the University of Arizona. Charles K. Whitehead is a law professor at Cornell Law School. This report will appear in Volume 100 of Cornell Law Review.

Comment on this summary or Diskussion beginnen