Bankers’ remuneration reforms and future challenges

The desire to structure the remuneration of top banking executives and other material risk takers (MRTs), particularly the elements that are risk sensitive and aligned with long–term incentives of their institutions, is at the centre of the regulatory debate. This discussion is part of the wider debate on the creation of cross–country banking regulation that is aimed at reducing systemic risk in the banking industry whilst maintaining its competitive and innovative elements. Following the introduction of the Capital Requirements Directives (CRD) III and IV the academic literature has shed some light on the benefits and costs of restrictions on variable pay, malus and clawbacks, and group behaviour of MRTs. Yet, we are still far from understanding the real costs and benefits of these reforms and the forthcoming CRD V, and how these will support the demands of fintech transformation of the banking industry and the need to promote sustainable finance

Bankers’ remuneration reforms and future challenges

The desire to structure the remuneration of top banking executives and other material risk takers (MRTs), particularly the elements that are risk sensitive and aligned with long–term incentives of their institutions, is at the centre of the regulatory debate. This discussion is part of the wider debate on the creation of cross–country banking regulation that is aimed at reducing systemic risk in the banking industry whilst maintaining its competitive and innovative elements. Following the introduction of the Capital Requirements Directives (CRD) III and IV the academic literature has shed some light on the benefits and costs of restrictions on variable pay, malus and clawbacks, and group behaviour of MRTs. Yet, we are still far from understanding the real costs and benefits of these reforms and the forthcoming CRD V, and how these will support the demands of fintech transformation of the banking industry and the need to promote sustainable finance

Saving with group or individual personal pension schemes: How much difference does it make?

The quality of services provided by institutional investors has attracted considerable attention. This paper adds to the debate by showing that institutional differences in setting up defined contribution personal schemes have an economically and statistically significant impact on the returns. Using a sample of 10,326 UK defined contribution personal pension funds over July 1990-June 2019, I show that pension funds that have a third party involved in contract setting and subsequent oversight deliver 0.96%-1.67% higher gross returns and charge 0.7% lower fees than pension funds offered directly to the public without any well-informed third party involved. I also show that the introduction of additional governance bodies in 2015 resulted in a widening of the performance gap, which further supports the notion that investment governance has a material impact on fund performance. The results highlight the importance of investment oversight and call for more protection for individual investors.</p

Stock market risk in the financial crisis

In this paper, we look at the effect of the financial crisis from an angle overlooked to date in the finance literature by investigating composition effects arising from the financial crisis. A composition effect is a change in the market risk of a sector that is caused not by a direct change in that sector but by a change in another sector that affects the composition of the stock market. In the paper we investigate the pre and during crisis market risk of the industrial, banking and utilities sectors. Amongst other results, we find, across the G12 countries, a positive relationship between the increase in the market risk of industrials during the crisis and both the pre-crisis market risk of the banking sector and the scale of the systemic crisis in a country. The six G12 countries that experienced a major systematic banking crisis are amongst the seven countries with the largest increases in the market risk for industrials. Results drawn from our detailed analysis using US data are consistent with these findings. Finally, we show how the results add to our understanding of the linkages between the financial and real sector and conclude that composition effects of the financial crisis could have a significant chilling effect on investment industrials, which is in addition to the effect of other linkages already documented

Institutional and individual investors: Saving for old age

This paper brings together the academic literature on individual and institutional investors in order to understand the nature of difficulties faced by them and set the background for the Special Issue. This introductory article and the papers in the Special Issue contribute to the debate on how to support individuals in their savings commitments and investment decision-making and whether and how institutional investors have fulfilled their role in supporting the development of the funded pension industry. There are three main conclusions: (i) individual investors are not ready for the role that has been assigned to them in the pension industry, (ii) institutional investors are a long way short of establishing healthy relational contracts and trustworthy relationships with their clients, and (iii) more effective regulation may be needed