Larry D. Wall
Working Paper 2019-06
March 2019

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Although a number of steps have been taken to reduce the risk of financial stability, some significant weaknesses remain. This paper examines whether stricter regulation of incentive compensation is the missing piece needed to reduce risk to acceptable levels. Unfortunately, this review of the literatures on the relationship of risk to bank chief operating officer and bank employee compensation suggest both have some potential but that significant concerns remain in both cases. At this point, we cannot confidently say that compensation regulation is the missing piece.

JEL classification: G01, G21, G28

Key words: incentive compensation, bank regulation

The author thanks the participants at the Banking Law Symposium 2018 at the University of Auckland held in honor of Professor David G. Mayes for helpful comments. The views expressed here are those of the author and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the author’s responsibility.
Please address questions regarding content to Larry D. Wall, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, 404-498-8937,
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