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Report
Corporate governance and banks: what have we learned from the financial crisis?
Recent academic work and policy analysis give insight into the governance problems exposed by the financial crisis and suggest possible solutions. We begin this paper by explaining why governance of banks differs from governance of nonfinancial firms. We then look at four areas of governance: executive compensation, boards, risk management, and market discipline. We discuss promising solutions and areas where further research is needed.
Discussion Paper
Educational opportunity and income inequality
Affordable higher education is, and has been, a key element of social policy in the United States with broad bipartisan support. Financial aid has substantially increased the number of people who complete university?generally thought to be a good thing. We show, however, that making education more affordable can increase income inequality. The mechanism that drives our results is a combination of credit constraints and the ?signaling? role of education first explored by Spence (1973). When borrowing for education is difficult, lack of a college education could mean that one is either of low ...
Report
Executive compensation and risk taking
This paper studies the connection between risk taking and executive compensation in financial institutions. A theoretical model of shareholders, debtholders, depositors, and an executive suggests that 1) in principle, excessive risk taking (in the form of risk shifting) may be addressed by basing compensation on both stock price and the price of debt (proxied by the credit default swap spread), but 2) shareholders may be unable to commit to designing compensation contracts in this way and indeed may not want to because of distortions introduced by either deposit insurance or naive ...