Good Governance Curbs Excessive Bank Risks

By Luis Brandão-Marques, Gaston Gelos, and Erik Oppers 

The global financial crisis reminded us that banks often take risks that are excessive from society’s point of view and can damage the economy. In part, this is the result of the incentives embedded in compensation practices and of inadequate monitoring by stakeholders.  Our analysis found the right policies could reduce banks risky behavior. 

Our findings

In our latest Global Financial Stability Report we take stock of recent developments in executive pay, corporate governance, and bank risk taking, and conduct a novel empirical analysis.

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The Long-term Price of Financial Reform

In response to the global crisis, policymakers around the world are instituting the broadest reform of financial regulation since the Great Depression. Some in the financial industry claim the long run economic costs of these global reforms outweigh the benefits. But our new research strongly suggests the opposite—the reforms are well worth the money.

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