Tuesday, May 29, 2012

Fixing the Banks:The Simplicity Solution - NYTimes.com

In her Harvard Business Review article, she lays out a handful of market-oriented ideas that would almost surely pare back the complexity risk posed by banks. My favorite is her first one: top bank executives and senior management should be paid in bonds as well as stocks — and in the same percentage as the bank’s risk profile. Thus, as she envisions it, a bank that had a dollar of debt for every dollar of equity would pay its chief executive half in debt and half in stock. But if the bank was accumulating, say, $30 of debt for every $1 of equity, the executive’s pay would also be skewed 30 to 1 in favor of debt. One would be hard pressed to imagine a more surefire way to focus a banker’s mind on making sure the bank could pay back that debt.

Posted via email from Jack's posterous

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