bank regulation
Why Stock Buybacks Increase Financial Stability in Banking
New research from SP Kothari, Hamid Mehran and Zirui Song argues that share buybacks - rather than traditional dividends - may actually be safer for financial stability since they offer banks more flexibility and don't signal distress when reduced. The authors show that while dividends create pressure for consistent payments and industry-wide ripple effects when cut, buybacks allow banks to adjust their capital distribution to the present circumstances.
The Key Policy Lessons of SVB
Looking back at the March 2023 collapse of Silicon Valley Bank and the subsequent banking crisis, Stephen G. Cecchetti and Kermit L. Schoenholtz highlight two lessons that should guide the reform of bank regulation.
Deferred Bonuses as a Buffer Against Bank Failures
Hamid Mehran discusses proposals for reforming bankers' compensation to better align incentives and risk-taking. Mehran contends market-based, self-regulating compensation structures would enhance governance and financial stability more effectively than punitive bonus caps or clawbacks imposed by regulators.
Fear of Punishment Distorts Bank Financial Reporting
When bank employees are afraid of punishment from regulators, they are likely to conceal information about their faulty decisions. This in turn distorts the...
