Bankers’ Remuneration Reforms and Future Challenges

Abstract

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.

Keywords: banking, remuneration, fintech, climate change risk, sustainability, regulation

JEL Classification: G20, G28, G38, G01, G39