Boston University School of Law

 

Paying Bank Examiners for Performance

M. Todd Henderson
University of Chicago - Law School

Frederick Tung
Boston University School of Law

Regulation, Vol. 35, No. 1, Spring 2012
Boston University School of Law Law & Economics Paper No. 12-20 (May 5, 2012)
Boston University School of Law Public Law & Legal Theory Paper No. 12-20 (May 5, 2012)


 

Abstract:    
 
Investigations into the recent financial crisis have found that banking regulators knew or should have known of many of the problems that would ultimately cripple the finance industry. We argue that their failure to address those problems prior to the crisis was at least partly due to misaligned incentives for bank examiners that encourage inadequate inspection and forbearance and discourage the curbing of ill-advised risk taking. We recommend changing examiners’ incentives to better align them with the public good. Specifically, banking regulators should be “paid for performance” — rewarded for nurturing long-term health for the banks they oversee as well as well-timed decisions to seize control of failing banks.

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Suggested Citation:

Henderson, M. Todd and Tung, Frederick, Paying Bank Examiners for Performance (April 2, 2012). Regulation, Vol. 35, No. 1, Spring 2012; Boston University School of Law Law & Economics Research Paper No. 12-20; Boston University School of Law Public Law & Legal Theory Paper No. 12-20. Available at SSRN: http://ssrn.com/abstract=2033355.

Contact Information

M. Todd henderson
University of Chicago - Law School
1111 E. 60th Street
Chicago, Illinois 60637

773-834-4168 (Phone)
773-702-0730 (Fax)

Email: toddh@uchicago.edu

Contact Information

Frederick Tung
Professor of Law

Boston University School of Law
765 Commonwealth Avenue
Boston, MA 02215

Phone: (617) 358-6184

fredtung@bu.edu

 

 

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