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This paper studies the default risk of banks generated by investment and remuneration pressures. Competing banks prefer to pay their banking staff in bonuses and not in fixed wages as risk sharing on the remuneration bill is valuable. Competition for bankers generates a negative externality, driving up market levels of banker remuneration and hence rival banks' default risk. Optimal financial regulation involves an appropriately structured limit on the proportion of the balance sheet used for bonuses. However, stringent bonus caps are value destroying, default risk enhancing, and suboptimal for regulators who control only a small number of banks. * John Thanassoulis is at the University of Oxford.

Mixed bundling in imperfectly competitive industries causes some prices to rise and others to fall. This paper studies under what conditions mixed bundling works for or against the consumer interest. We find that if buyers incur firm-specific costs or have shop-specific tastes then competitive mixed bundling lowers consumer surplus overall and raises profits-the same is true of competitive volume discounts. Competition without these volume discounts causes all prices to be kept low as larger customers are targeted; with volume discounts the prices for heavy users drop, but more is extracted from small users. The consumer surplus result is reversed if the differentiation between components as opposed to firms is key.