By linking bank executive compensation to long-term performance, ________ hopes to ________ in financial markets.
A) Long Term Capital Management; increase the use of complicated financial algorithms
B) the Squam Lake Group; reduce systematic risk-taking
C) American Insurance Group; increase the use of collateralized insurance obligations
D) the Fed; increase risk-sharing through the use of collateralized debt obligations
E) Fannnie Mae; reduce subprime loans

Question

Quizplus · Accepted Answer

The Squam Lake Group, which is a group of financial economists, has advocated for linking bank executive compensation to long-term performance in order to reduce systematic risk-taking in financial markets. This is because if executives are incentivized to prioritize short-term gains, they may take on excessive risk that could lead to systemic issues. By instead aligning their compensation with long-term performance, they are encouraged to prioritize stability and sustainable growth.

By Linking Bank Executive Compensation to Long-Term Performance, ________ Hopes