The Bonus Risk

In its July session, the European parliament approved some of the strictest rules in the world on the bonuses paid to bankers. If the problem is the moral hazard implied by being too big to fail, the solution is not to restrict pay, but to eliminate the hazard by forcing shareholders to issue more equity or lose their stock when banks’ debt starts to become risky.

CHICAGO – In its July session, the European parliament approved some of the strictest rules in the world on the bonuses paid to bankers. The aim is to curb risk-taking by financial institutions.

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