Review of Financial Studies, Forthcoming
57 Pages Posted: 21 Nov 2010 Last revised: 13 Nov 2013
Date Written: October 14, 2013
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: 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