analyzes how compensation schemes change in reaction to anticipated bail-outs. If there is a risk-shifting problem, bail …-out expectations lead to steeper bonus schemes and even more risk-taking. If there is an effort problem, the compensation scheme … perceptions makes it optimal for a welfare-maximizing regulator to impose caps on bank bonuses. In contrast, raising managers …

analyzes how compensation schemes change in reaction to anticipated bail-outs. If there is a risk-shifting problem, bail …-out expectations lead to steeper bonus schemes and even more risk-taking. If there is an effort problem, the compensation scheme … perceptions makes it optimal for a welfare-maximizing regulator to impose caps on bank bonuses. In contrast, raising managers …

benefits. Contrary to claims in the literature that “equity is expensive” and that regulation requiring more equity in the … funding mix entails costs to society, such regulation actually helps create useful commitment for banks to avoid the … inefficiently high borrowing that comes under laissez-faire. Effective regulation is beneficial even without considering systemic …

. Contrary to claims in the literature that "equity is expensive" and that regulation requiring more equity in the funding mix … entails costs to society, such regulation actually helps create useful commitment for banks to avoid the inefficiently high … borrowing that comes under laissez-faire. Effective regulation is beneficial even without considering systemic risk; if such …

returns are perfectly correlated, a low wage can indicate risk. Connections to compensation regulation and characteristics of … the connection between compensation of bank employees (below CEO) and bank risk. Limited liability with deposit insurance … is a force that distorts effort down. However, the need to increase compensation to risk-averse employees in order to …

We develop a conceptual framework that links executive compensation incentives to the external risks and returns … systemic risk (Acharya, et al. forthcoming) allow us to estimate our framework for U.S. commercial banking companies. We find …