Loan Contracting Revisited: Taking Stock and Moving Forward

From 2012, enhancements to the Basel II global banking guidelines will require banks to comply with disclosure rules on their entity-wide compensation practices. Without doubt, remuneration design within the finance sector is an emotive area that has attracted considerable scrutiny. There have been many recommendations aired as to how compensation practices should be altered. In contrast, Loan Contracting Revisited takes a step backwards and systematically analyses this prominent area of bank activity. By gradually building situational awareness of the attributes of the loan offer process, that include the grounding of borrower-lender negotiations within a fluctuating business cycle context, the pitfalls inherent in commonly advocated approaches towards reconfiguring motivational pay are unmasked. Both short- and long-term performance metrics, the latter focused on the emerging sustainability challenges of the future, are explored. In this timely book, the author argues that action within banks alone is not sufficient to address recent concerns. The investment community must actively differentiate between the value effects of institutional risk strategies inferred from governance and compensation design. Whether your involvement with financial institutions is that of an inside operative, outside borrower or investor, Loan Contracting Revisited delivers an informative perspective on the state of play.