This paper studies banker remuneration in a competitive market for banker talent. I model, and then calibrate, the default risk of the banks generated by investments and remuneration pressures. Competing banks prefer to pay their banking staff in bonuses and not in wages as risk sharing on the remuneration bill is valuable. But competition for bankers generates a negative externality driving up rival banks’ default risk. Optimal financial regulation involves an appropriately structured li...Expand abstract
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The Case For Intervening In Bankers' Pay.
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