Citation

Discussion Paper Details

Please find the details for DP7179 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Internal Reporting Systems, Compensation Contracts and Bank Regulation

Author(s): Gyöngyi Lóránth and Alan Morrison

Publication Date: February 2009

Keyword(s): capital regulation, compensation and internal reporting system

Programme Area(s): Financial Economics

Abstract: We examine the interdependency between loan officer compensation contracts and commercial bank internal reporting systems (IRSs). The optimal incentive contract for bank loan officers may require the bank headquarters to commit not to act on certain types of information. The headquarters can achieve this by running a basic reporting system that restricts information flow within the bank. We show that origination fees for loan officers emerge naturally as part of the optimal contract in our set-up. We examine the likely effect of the new Basel Accord upon IRS choice, loan officer compensation, and bank investment strategies. We argue that the new Accord reduces the value of commitment, and hence that it may reduce the number of marginal projects financed by banks.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7179

Bibliographic Reference

Lóránth, G and Morrison, A. 2009. 'Internal Reporting Systems, Compensation Contracts and Bank Regulation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7179