Banks at greater risk 'thanks to bonuses'

18 May 2011

Bonuses are placing banks at greater risk, a new study has shown.

Carried out by a team at Edinburgh University, the research found that bankers are more likely to involve their company in riskier deals if they stand to gain financially from doing so.

The investigation considered US bank acquisitions between 1993 and 2007 and discovered that chief executives who were personally compensated for completing such deals were more likely to be involved in takeovers and mergers that carried more danger.

Authors of the study, which has been published in the Journal of Corporate Finance, said the findings support calls for banker pay to face greater regulation in order to encourage financial stability.

Lecturer at the University of Edinburgh business school Jens Hagendorff said: "Chief executive pay in banking is much more geared towards rewarding risk-taking than in any other industry."

Outgoing BNP Paribas chairman Michel Pebereau recently told the Financial Times that over-regulation of banks in the UK could result in London losing its status as a world leader in the industry.

By Claire Archer

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