Tuesday, November 18, 2008

Big Banks and Big Compensation

Felix Salmon has a post Against Big, Public Banks:

There's a strong case to be made that banks, like law firms, should be boring and conservative and reasonably small and mutually-owned. That's one of the thing which worries me most about TARP and the $140 billion tax break being used to encourage huge banks to get even bigger still. The fact that all those huge banks are publicly-listed and therefore prone to taking excessive risks only makes matters worse.
I think the "prone to taking excessive risks" part ties in to my previous post about the huge compensation received by management at the big banks. These huge pay packages can only be justified by company performance, and giving up market share to avoid risk is not viewed as good performance until it's too late.