May 3, 2010
Failing corporate governance: Why banks are addicted to risk
Bankregulering moet rekening houden met de prestatiebeloningen voor handelaren
Press release
De mogelijkheden van een bankdirectie om handelaren aan te sturen zijn beperkt. Individuele handelaren hebben beter zicht op de risico's van de deals die zij aangaan dan het management van de bank.
We are sorry, unfortunately there is no English translation of this page.
We first review market failures leading to imperfect governance by the bank's stakeholders, and the rationale for bank regulation. We then ask whether internal governance problems within the bank might lead to perverse incentives for traders even when bank management is optimally incentivized.
We in turn address:
- Commitment problems that prevent banks from offering optimal contracts to their traders;
- Inefficient herding caused by traders' career concerns;
- Distortions in trader incentives due to strong competition on the trader labour market.
This publication is in Dutch.
Authors
Michiel Bijlsma
Gijsbert Zwart