Involuntary excess reserve and bankers’ remuneration: evidence from Chinese banks

ABSTRACT

This article analyses the effects of involuntary excess reserves (IER) on bankers’ remuneration and the penalty associated with bank risk-taking if discovered. The study finds that IER help conceal tail risks, improves bankers’ performance and remuneration. However, the risks once discovered result in heavy penalties on bankers’ remuneration. The study extends the agency theory to the context where banks hold large IER.

KEYWORDS:

• Excess reserves
• tail risk
• remuneration
• Chinese banks

JEL CLASSIFICATION:

• G20
• G21

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Current account holdings with the central banks beyond statutory required and precautionary levels (Agenor, Aizenman, and Hoffmaister 2004).