Bank Capital Structure, Leverage, and Executive Compensation

Emilios Avgouleas, James Cullen

Research output: Contribution to conferencePaper


Presented at 'Berkeley International Financial Regulation Workshop', Berkeley Law School

High leverage levels led to virtually limitless expansion of bank asset size, which maximized, in the short- to medium term, banks’ return on equity. In the absence of regulatory controls on leverage, all it takes to assume excessive risks, even for benign senior bank managers, is to imitate competitor business strategies and herd. Therefore, while executive greed has been a major factor behind bank short-termism and excessive risk-taking, the caricature of the villainous banker betting the bank to increase the value of her stock options might, to a certain extent and in certain cases, be more fiction than part of real life. High leverage/high risk asset books might have, instead, been built due to herding caused by peer pressure, as competitor banks maximized shareholder returns through excessive use of cheap debt. If that is the case, then contemporary reforms that have given so much attention to an issue of secondary importance (executive compensation), instead of one of cardinal importance (leverage), are bound to produce, in the long-term, sub-optimal results, notwithstanding the conspicuous political gains of such a strategy.
Original languageEnglish
Publication statusUnpublished - 2013


Dive into the research topics of 'Bank Capital Structure, Leverage, and Executive Compensation'. Together they form a unique fingerprint.

Cite this