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Internal Reporting Systems, Compensation Contracts, and Bank RegulationGyongyi LoranthCentre for Economic Policy Research (CEPR) Alan D. MorrisonUniversity of Oxford - Said Business School; University of Oxford - Merton College February 13, 2009 EFA 2009 Bergen Meetings Paper Abstract: We examine the interdependency between loan officer compensation contracts and commercial bank internal reporting systems (IRSs). The optimal incentive contract for bank loan officers may require the bank headquarters to commit not to act on certain types of information. The headquarters can achieve this by running a basic reporting system that restricts information flow within the bank. We show that origination fees for loan officers emerge naturally as part of the optimal contract in our set-up. We examine the likely effect of the new Basel Accord upon IRS choice, loan officer compensation, and bank investment strategies.
Number of Pages in PDF File: 43 Keywords: Bank regulation, internal reporting systems, bank incentives JEL Classification: G21, G28 working papers seriesDate posted: February 16, 2009Suggested CitationContact Information
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