Law School research gets glowing quote in the Financial Times

Professor Emilios Avgouleas recent paper ‘Excessive Leverage and Bankers’ Pay: Governance and Financial Stability Costs of a Symbiotic Relationship’ was held as paradigm shifting scholarship about the principal causes of bank failures in a recent article in the Financial Times (The ‘Tale of Two Banks’) penned by Martin Arnold, the FT’s business editor.

Emilios’ paper, co-authored with Jay Cullen, was first presented at a Berkeley conference last year and then at a Harvard seminar and stirred up vivid debate, as it challenges academic and regulatory orthodoxy in the realm of financial stability reform.

It holds that excessive bank leverage creates agency and governance costs that may not be resolved through regulation of bankers’ pay. Career security and advancement concerns make management as much susceptible to shareholder pressure to maximize returns by taking excessive risks on debt-fuelled balance sheets as perverse compensation incentives. Of course, such behaviour undermines the stability of financial institutions and of the banking system as a whole. Therefore, well calibrated controls of bank leverage rather than government intervention in private contracting is the key to a safer banking sector.

The full Financial Times article can be found here. 

Emilios’ paper can be downloaded free of charge here.