Fdicia and Bank CEO Compensation: An Empirical Investigation

Abstract

Banking problems in the 1980s lead to the passing of FDICIA (1991). The purpose of this legislation was to improve market and regulatory discipline on bank performance through changes in the incentive structures for bank regulators and bank stakeholders. Herein, our paper looks at the implications of FDICIA for an important set of private contracts, bank CEO compensation. While subcomponents of bank CEO compensation appear to be more closely tied to market performance after the enactment of FDICIA, total compensation package does not. Hence, our empirical results support the hypothesis that the reregulation embodied FDICIA diminishes the effectiveness of private contracts.