Securitization and Compensation in Financial Institutions*

Competition for traders and risk

“…However, it is less clear why the need to leave a larger part of the rents to traders should lead to a different incentive structure. Independent of competition, it would seem that the banks would opt for the incentive structure that leads to highest overall gain, as also observed in Inderst and Pfeil ().…”

“…Other related recent articles study market failures in compensation setting within banks different from ours and argue for regulation in this area. Inderst and Pfeil (2013) and Thanassoulis (2013) look at benefits and costs of deferral of bonus payments. Besley and Ghatak (2013) analyze how bank bailouts affect trader compensation structures and explore how regulation may be combined with taxation to restore proper incentives.…”

Abandon Ship: Deferred Compensation and Risk-Taking Incentives in Bad Times

“…Colonnello, Curatola, and Hoang (2017) extend this result to public debt and illustrate that low-seniority debt can interact with equity incentives in making CEOs less conservative. Such an unintended increase in managerial risk-taking is concentrated in bad times (Inderst and Pfeil, 2013). Goh and Li (2015) document that CEO pensions are unlikely to qualify as actual inside debt in the UK context, but rather as substitutes for other performance-sensitive compensation items.…”

Why Risk Managers?

“…show that rotation of loan officers incentivizes them to reveal more information about loans and is thus a form of risk management after loans are disbursed Udell (1989). show that banks invest more in loan review process when their loan officers have more discretion.10 See, also,Inderst and Ottaviani (2009) andInderst and Pfeil (2012).11 For more on bank organizational form and use of information, see, for example,Berger and Udell (2002),Stein (2002),Berger et al (2005), among others.…”