Why regulators should focus on bankers’ incentives


This is an article advocating incentives and disincentives on bankers rather than banks.

Regulators should not levy fines on banks, despite them having the legal status of a person, and instead apply the fines to those responsible at the time of the offense, whether subsequently retired or not.  As earlier noted, the onus of proof should be on the managers of those who committed the misdeed, and so on up the hierarchy, to convince (a jury) that they took all reasonable steps to prevent the misdeeds of their subordinates.  The size of fine could be related positively both to the extent of negligence and to rank.

Of course, the threat of personal liability and loss could make bankers overly cautious, as is often said of US medical practice, with unnecessary and costly tests of patients to reduce the threat of suits.  As usual, there would be an optimum internal degree of liability, but we are currently well below it.

The complete article

Charles Goodhart – Bank Underground

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2 thoughts on “Why regulators should focus on bankers’ incentives

  1. A thought that comes from this reflection on bankers incentives…

    We have the same bonus system in our industry but it is only there for managers. The rest of us ‘Team Members’ are expected to do our job well without a bonus incentive. Perhaps it’s time to ask the question – ‘Why do managers need an incentive to do their job properly when the rest of us do our jobs properly regardless?’

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