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Full-Text Articles in Law
Reverse Regulatory Arbitrage: An Auction Approach To Regulatory Assignments, Frederick Tung, M Todd Henderson
Reverse Regulatory Arbitrage: An Auction Approach To Regulatory Assignments, Frederick Tung, M Todd Henderson
Faculty Scholarship
In the years before the Financial Crisis, banks got to pick their regulators, engaging in a form of regulatory arbitrage that we now know was a race to the bottom. We propose to turn the tables on the banks by allowing regulators, specifically, bank examiners, to choose the banks they regulate. We call this “reverse regulatory arbitrage,” and we think it can help improve regulatory outcomes. Building on our prior work that proposes to pay bank examiners for performance — by giving them financial incentives to avoid bank failures — we argue that bank supervisory assignments should be set through …
Bank Ceos, Inside Debt Compensation, And The Global Financial Crisis, Frederick Tung, Xue Wang
Bank Ceos, Inside Debt Compensation, And The Global Financial Crisis, Frederick Tung, Xue Wang
Faculty Scholarship
Bank executives’ compensation has been widely identified as a culprit in the Global Financial Crisis, and reform of banker pay is high on the public policy agenda. While Congress targeted its reforms primarily at bankers’ equity-based pay incentives, empirical research fails to show any correlation between bank CEO equity incentives and bank performance in the Financial Crisis. We offer an alternative analysis, hypothesizing that bank CEOs’ inside debt incentives correlate with reduced bank risk taking and improved bank performance in the Crisis. A nascent literature shows that inside debt may dampen CEOs’ risk taking incentives. Unlike the industrial firms that …