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caused the loss, the investment bank must also be paid bonuses.
For the investment bank's senior managers, in addition to the salary, there are enviable, the additional benefit plans and other benefits.
Investment banking compensation design is equivalent to a "no ceiling, under a security at the end", which apparently provides an incentive mechanism, so that the investment decision-makers and staff dare to take risks, but do not take full responsibility in terms of money. Because any losses are managed entirely by the company and ultimately borne by the shareholders and not by staff. Even if the employee mistakes or losses, there are still basic wage can get our hands on, the worst case is to resign. So employees have a strong incentive to pursue high profits. In the past few years bull market, employees are chasing the drawbacks of high-risk high-yield are masked appearance, people are year-end bonuses and dividends to be dazzled, these high-risk transactions forget the potential risks of explosive.
The current pay system allows for large-scale investment bank risk-taking behavior is not only to provide an incentive, but also can not be cut in order to rapidly reduce the overall cost of bonuses, which reduces its cost-cutting to digest through the rapid loss of funds and asset writedowns capacity, which is sufficient to become a potential threat to financial stability.
Since 2006 in the United States subprime crisis gradually due to bankruptcy of subprime mortgage lenders, investment funds were forced to close, the turbulent stock market, coupled with the U.S. financial system on the loose monetary policy, excessive financial innovation, not in place of the financial support regulatory and consumer credit growth patterns and, eventually, a crisis in the mortgage market spread to the entire U.S. economy market. The rare crises that have had 79-year history of the U.S. investment banking industry in a short period of time suffered. We must learn from the lessons of the crisis, not to repeat it.
1, to be cautious about the risks of excessive financial innovation.
Financial innovation is a "double-edged sword," It can play an active transaction, transfer and risk diversification function can also be set off by virtue of leveraged finance waves. Financial innovation is to promote the development of the financial industry source of power, there would be no innovation efficiency. In a market economy, innovation is the fundamental driving force of economic development. Therefore, we should grasp the financial innovation and the balance between risk control on the basis of financial innovation. If financial innovation knowledge simply for the pursuit of profit, then the consequences will be no one to pay attention to the real value of these financial products, it is bound to promote the benefits or of short-term speculation, causing a financial crisis. As the emergence of MBS and CDS is out of their financing needs, and ultimately unable to cope with a shortage of liquidity in the market brought about by the crisis. Financial innovation so concerned about the potential financial risks and liquidity risks to financial efficiency and the efficient allocation of financial resources as the primary purpose of financial innovation, financial innovation will be placed within the controllable range, making it a real financial de