Fine-tuning Bank Governance and Resolution: The Case for Remunerating Bankers through Bail-Inable Debt

Abstract

This paper proposes a radical change in the current remuneration practices, including bail-inable debt within the variable component of remuneration packages. In supporting such claim, the paper sets the economic rationale for remuneration and explains the quintessential role of debt in banking. Against such theoretical framework, the incumbent EU regulation reveals to be severely flawed. Consequently, the paper shows why including bail-inable debt in remuneration packages provides incentives towards optimal risk-taking and develops a detailed policy proposal that focuses both on the content of the regulation and on the possible implementation strategies. Bank Governance, Remuneration, Capital Requirement Directive, Bank Resolution, Bail-inable debt, Stability, Resolvability, Managerial Incentives; Excessive Risktaking; Material Risk-Takers

Getting Bank Governance Right - The Interplay between the Resolution Framework and the Role of Creditors, with an Application to EU Law

“…The first category of studies relates to proposals to alter the fiduciary duties owed by bank directors. In corporate law, directors and managers owe the corporation "fiduciary duties", 28 i.e. : the duty to act with care and loyalty in its best interest.…”

“…In banking, the claim for opting out, at least partially, of the shareholders' 25 See, for instance, Bebchuk and Spamann [25]; Murphy [26]; Baghat and Romano [27]. 26 Se at length Martino [28]. 27 Hansmann and Kraakman [4], p. 443.…”

“…27 Hansmann and Kraakman [4], p. 443. 28 The concept of fiduciary duties is proper of the US legal framework and scholarship. Yet, such paradigm can be used more in general to describe the functional feature of corporate law in different jurisdiction.…”