Enabling Debt Governance: Bail-Inable Debt and Remuneration
摘要
This chapter proposes to regulate bank manager remuneration, imposing that a portion of such remuneration be paid through bail-inable debt, as a channel to fine-tune bank governance and the resolution framework and, thence, enhancing the resilience and the resolvability of financial institutions. The remuneration of bank managers represents a highly contentious matter that has attracted the attention of academics, policymakers, as well as the rage of the media and public in the aftermath of the financial crisis. This chapter proposes a radical change in the current remuneration practices, including bail-inable debt within the variable component of remuneration packages. The current regulatory framework and resulting practices in the EU are highly unsatisfactory since they weaken the link between pay and performance. Moreover, it does not consider the specificities of bank corporate governance; consequently, the negative externalities it generates are still unaccounted for. In supporting the seemingly naïve claim of remunerating bank managers through debt, this chapter sets the economic rationale for remuneration, highlighting the special case of the banking industry and explaining why debt can be particularly useful in such a framework. Against the theoretical framework resulting from such analysis, the second part of this chapter critically assesses the existing EU regulation on the structure of remuneration packages. This highlights how the policy goal of optimising the risk-taking incentives of bank managers is far from being achieved and, more importantly, that a radical change in the regulatory paradigm is necessary to achieve this goal.