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Journal Articles VoxEu Year : 2017

Leverage and limited liability: a toxic cocktail

Abstract

There is little doubt that one of the main causes of the Global Crisis was excessive risk-taking by large international financial institutions. This column argues that the combination of very high leverage and limited liability continues to incentivise risky behaviour by bankers. Dealing with this problem requires the alignment of bankers’ incentives with those of society, rather than of shareholders. Deferred compensation in the form of contingent convertibles presents one promising strategy.
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Dates and versions

hal-01884330 , version 1 (30-09-2018)

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  • HAL Id : hal-01884330 , version 1

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Jean-Pierre Danthine. Leverage and limited liability: a toxic cocktail. VoxEu, 2017. ⟨hal-01884330⟩
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