Friday, March 26, 2010

Banking regulation and wages

It looks like the furore over outsize pay in banking is dying down. Kenneth Feinberg's final report on the pay practices identified $1.6 billion of "ill-advised" pay among banks that took TARP funds. Yet it named no names, and insisted that the pay was all legal.

The transatlantic gap on pay looks set to widen. While the European commission is requiring that 40-60% of bonuses be deferred for three to five years and half the upfront bonus be paid in shares, pretty much all that the Dodd- Frank bill does is require that share-holders have a non-binding vote on executive pay. The logic behind Dodd-Frank's "say-on-pay" provision is unclear; after all equity holders generally stand to gain as much as executives when the risks pay-off, and it's society that ends up paying when the risks don't.

Interestingly, a study by Thomas Philippon and Ariell Reshef shows that there is a strong correlation between regulation of finance and the wages of financiers. The wave of regulation enacted in the Great Depression not only prevented a systemic crisis for over 70 years, it also had the secondary effect of reducing the wages of bankers to roughly the same level as other non-farm workers. As the chart below illustrates, the deregulation over the last 30 years that arguably contributed to the present financial crisis, also led to a dramatic increase in banker's wages.


So will the Dodd-Frank bill lead to the same sort of precipitous drop in banker's wages as the Glass-Steagall bill in 1933? Too early to tell, but as I noted in my post on BankSimple, it doesn't looks promising.

2 comments:


  1. Hello everyone,

    What are your Financial needs?
    We give out loans from a minimum of $1,000.00 to a maximum of $10,000,000.00 with comfortable duration that ranges from 1 to 30 years at a very reduced interest rate of 3%.

    Do you need a business loan?
    Do you need a personal loan?
    Do you want to buy a car?
    Do you want to refinance?
    Do you need a mortgage loan?

    Do you need a huge capital to start off your business proposal or expansion? Have you lost hope and you think there is no way out, and your financial burdens still persists?
    Please do not hesitate to contact us for possible business co-operation

    Contact us via email: ramzanhelp31@gmail.com

    Mr. Ramzan

    ReplyDelete


  2. Do you need a loan .We are Legitimate and guarantee loan lender. We are a company with financial assistance. We loan funds out to individuals in need of financial assistance, that have a bad credit or in need of money to pay bills, to invest on business. I want to use this medium to inform you that we render reliable beneficiary assistance as We'll be glad to offer you a loan Contact us via Email: susanwanda1993@gmail.com

    Services Rendered include

    *Debt Consolidation
    *Business Loans
    *Personal Loans.
    *Car Loans
    *Rent and House Loans

    Write back if interested with our interest rate of 4% annual. Contact us via Email: susanwanda1993@gmail.com

    Please Note: All interested individual must send a message to our email for urgent response and details to obtain a Loan.

    Best Regards.
    Email:susanwanda1993@gmail.com
    WhatsApp: +1 (915) 320- 3164

    ReplyDelete