Risk Managers in Banks

50 Pages Posted: 18 Sep 2020

See all articles by Matthias Efing

Matthias Efing

HEC Paris - Finance Department; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Patrick Kampkötter

University of Tuebingen - Department of Managerial Accounting

Date Written: August 26, 2020

Abstract

How do banks remunerate risk managers and what are the implications for risk-taking? Studying 127 German banks during the years 2003 to 2007, we show that risk managers' remuneration is positively aligned with performance-linked pay in front offices (FOs). When bonuses in FOs increase by one Euro, the bonus of a risk manager increases by 13.6 to 33.5 Cents, depending on the risk manager’s seniority. Risk-sharing among employees or labor market competition do not explain this finding. Banks with more aligned incentive pay between risk management and FOs during the years before the crisis of 2008-2009 performed better in the crisis.

Keywords: risk management, governance, pay-for-performance, revolving doors, risk-taking

JEL Classification: G20, G21, J3

Suggested Citation

Efing, Matthias and Kampkötter, Patrick, Risk Managers in Banks (August 26, 2020). Available at SSRN: https://ssrn.com/abstract=3681255 or http://dx.doi.org/10.2139/ssrn.3681255

Matthias Efing (Contact Author)

HEC Paris - Finance Department ( email )

France
(++33)695646755 (Phone)

HOME PAGE: http://matthiasefing.com/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Patrick Kampkötter

University of Tuebingen - Department of Managerial Accounting ( email )

Germany

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