Bank's Ceo Incentives and Credit Crisis Essay

Bank's Ceo Incentives and Credit Crisis Essay

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This Essay will debate whether “bank CEO incentives were a major factor in the credit crisis. In the quest of description of the dramatic breakdown of the stock market capitalization of a great part of the banking industry in the U.S. during the credit crisis, one main argument is that CEO at banks had poor incentives.This collapse had a cascading effect on the entire major financial or credit market across the world. In this downfall, many of the financial services providers like Goldmansach , Royal Bank of Scotland and Lehman Brothers have reported bankruptcy on the heels of severe losses in their mortgages. Many of the researcher and scholarsVarious scholars such as XXXXXX have debated the have mentioned various reasons for the 2008 financial crisis, but the uppera significant factor that many most reason in the minds of researchers is that mostdiscuss is that of the banks neglected their social roles. This has highlighted the functions of the bank’s CEOs to deploy most of the investors fund in the riskier assets to earn the substantial incentives by generating the higher returns. The perception of bank’s CEOs to attain the higher income by investing in the riskier assets has createdis one of the factors argued to have the foundation ofstarted the financial crises. Beltratti and Stulz (2012) stated the examining the performance of the banks is crucial during the debt crises.
Aligning the Compensation with long Tem Performance ….
In the past, the role of the bank’s CEOs was only discussed in the areas of economic and corporate governance, but now this has been shifted towards the business ethics. Some of the scholars, such as Cheng et al (2010), argued that fragile compensation and incentive schemes are the one of the ...


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...tant as all the incentives must be linked with the long term performance of the shareholders. The incentives must be rewarded on the basis of developing the shareholder’s wealth in the long term. Finally, in the long run, the main emphasis should be given to the business ethics as banks are unlikely to generate any extra ordinary gains, if their CEOs are not taking the serious risk in their investments. Therefore, it is pointless to focus on only one point that excessive risks taken by banks resulted to financial crises. The concentration must be diverted more towards the redesigning the ethical framework while taking a decision on CEOs incentive structure.



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Bank's Ceo Incentives and Credit Crisis Essay

- This Essay will debate whether “bank CEO incentives were a major factor in the credit crisis. In the quest of description of the dramatic breakdown of the stock market capitalization of a great part of the banking industry in the U.S. during the credit crisis, one main argument is that CEO at banks had poor incentives.This collapse had a cascading effect on the entire major financial or credit market across the world. In this downfall, many of the financial services providers like Goldmansach , Royal Bank of Scotland and Lehman Brothers have reported bankruptcy on the heels of severe losses in their mortgages....   [tags: credit crisis, stock market, banks]

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