Financial Crisis, Corporate Governance, and Bank Capital

This book proposes a solution to the 'too big to fail' problem that will help to prevent future financial crises.

Sanjai Bhagat (Author)

9781107170643, Cambridge University Press

Hardback, published 10 March 2017

256 pages, 22 b/w illus.
23.1 x 15.7 x 1.8 cm, 0.5 kg

'Professor Bhagat's proposal to require restricted equity compensation for bank executives and to raise their banks' equity capital is backed by sound logic and extensive empirical evidence. This book by a renowned expert in corporate governance and compensation is a must read for anyone concerned with the problem of Too-Big-to-Fail banks.' George Pennacchi, Bailey Memorial Chair of Money, Banking, and Finance, University of Illinois

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.

1. Introduction
2. Mortgage public policies: 'cause' of the crisis
3. Pre-crisis executive compensation and misaligned incentives
4. Managerial incentives hypothesis versus the unforeseen risk hypothesis
5. Bank CEOs' buys and sells during 2000–8
6. Executive compensation reform
7. Director compensation policy
8. Are large banks riskier?
9. Bank capital structure and executive compensation
10. Why banks should be mostly debt financed: parade of non sequiturs
11. Conclusion.

Subject Areas: Financial services law & regulation [LNPF], Corporate governance [KJR], Banking [KFFK], Corporate finance [KFFH]