The Labor Market for Bankers and Regulators

Review of Financial Studies, Forthcoming

57 Pages Posted: 21 Nov 2010 Last revised: 13 Nov 2013

Philip Bond

University of Washington - Michael G. Foster School of Business

Vincent Glode

University of Pennsylvania - The Wharton School

Date Written: October 14, 2013

Abstract

We propose a labor market model in which agents with heterogeneous ability levels choose to work as bankers or as financial regulators. When workers extract intrinsic benefits from working in regulation (such as public-sector motivation or human capital accumulation), our model jointly predicts that bankers are, on average, more skilled than regulators and their compensation is more sensitive to performance. During financial booms, banks draw the best workers away from the regulatory sector and misbehavior increases. In a dynamic extension of our model, young regulators accumulate human capital and the best ones switch to banking in mid-career.

Keywords: Financial regulation, banking, fraud, intrinsic benefit, career choice

JEL Classification: G28, J24, J45

Suggested Citation

Bond, Philip and Glode, Vincent, The Labor Market for Bankers and Regulators (October 14, 2013). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1712063 or http://dx.doi.org/10.2139/ssrn.1712063

Philip Bond

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Vincent Glode (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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