Emrah Arbak

Voluntary leadership: motivation and influence

In social dilemmas, leading a team by making heroic efforts may prove costly, especially when the followers are not adequately motivated to make similar sacrifices. Attempting to shed light on what drives people to lead, we devise a two-stage public good experiment with endogenous timing. We show that leading by making generous contributions is widespread and relatively persistent. At least three motives explain this behavior. Some use leadership strategically to distill personal gains, with the expectation that others will respond by being at least as generous. Others are more altruistic, volunteering to lead even though this may come at a personal cost. Yet for another fraction of volunteers, a concern for maintaining a positive social image appears to be responsible. We also find that voluntary leaders are not necessarily more influential than randomly-chosen leaders.

Endogenous Leadership: Selection and Influence

In social dilemmas, leading a team by making heroic efforts may prove costly, especially if the followers are not adequately motivated to make similar sacrifices. Attempting to understand what motivates these seemingly selfless individuals to lead, we report the results of a two-stage public good experiment with endogenous timing. Even though it turns out to be costly on average, a large proportion of our subjects volunteer to lead. Our findings suggest that a fraction of these leaders are socially concerned, while others expect to distill some personal gain, possibly of non-pecuniary nature. The composition of the team also matters, as publicizing certain attributes of a subjects teammates has an impact on her decision to lead. Lastly, though voluntary leaders improve efficiency in their team, they are not necessarily more influential than randomly imposed leaders.

Business Models in European Banking: A Pre-and Post-Crisis Screening

The next few years will be critical for Europe’s banking industry as it faces a number of financial sector reforms that will have a decisive impact on the dominant practices and business models followed across the EU. This timely report presents the results of the first screening exercise conducted of the performance, stability, risk, efficiency and corporate governance of 26 major European banks, before, during and after the financial crisis, with a view to identifying key strengths and weaknesses inherent in the dominant business models in light of the upcoming regulatory changes.

Executive Compensation and Risk Taking in European Banking

Recent financial crisis has renewed attention on compensation schemes and their impact on risk-taking in depository institutions. Without ample theoretical and empirical backing, the recent policy proposals in the EU have suggested that long-term incentive plans that are closely linked to bank performance would lead to less risk-taking. Using a novel database on executive pay for 53 systemically important banks in the EU for the years 1999-2009, our analysis shows, instead, that the presence of the so-called “long-term incentive plans” may actually augment risk-taking. Moreover, although their values depend closely on long-term market performance, the presence of an option plan does not seem to lead to more risk. Our results are robust to the consideration of the joint determination of compensation and risk as well as alternative risk measures.

Compelling International Initiatives

The previous chapter outlined some of the key areas of growth while highlighting the reputational risks faced by financial centres. The discussion started with the late 1990s, with first the G-7 and then the G-20 countries partly driving a change in the operating environment of financial centres. In addition to the regional roles of specific jurisdictions or supranational bodies (such as the EU), the sector-specific initiatives have been divided up between different international organizations.

Risks and Opportunities

The following discussion will cover the most important challenges and opportunities awaiting the small financial centres during the rest of the 2010s. The objective is not to provide an exhaustive list of potential issues but simply a general overview of the main factors and forces that may drive change within the period foreseen. The main issues considered will be: the short- to mid-term impact of the financial crisis; the renewed drive to regulate the financial market, especially in the EU; the growing attention paid to global cooperation on tax competition; fiscal concerns in most developed countries; and the shifting poles of global economic activity and wealth.

Conclusions and the Way Forward

The external environment awaiting European small financial centres is likely to change in the upcoming years. The fiscal challenges in most advanced Western economies, due both to the crisis responses and to the aging population, is likely to lead to higher taxes and fiscal problems. The financial crisis has also led to a new regulatory drive, widening both the scope and depth of financial market regulations. As the increased importance of the G-20 clearly attests, there is also an agreement to achieve greater global coordination and governance. Reputation is becoming capital, with small financial centres that have weak records facing increasing scrutiny and substantial drawbacks in the international political arena. Meanwhile, global wealth is increasingly shifting to the East and towards the emerging economies, posing concentration risks to the small European financial centres.

Appendix I: Survey of Selected Financial Centres

Before summarizing the highlights for each financial centre individually, it may help to consider how the jurisdictions included in our study compare with one another.

Evolving Nature and Scope of Activities

Almost all of the financial centres considered in this book have developed since the 1960s in response to the globalization of capital markets and wealth generation. They have also benefited from restrictions imposed to limit international capital flows and to improve balance of payments in the host countries. Particularly prevalent in the US, the relevant policy actions included greater reserve requirements for banks, binding interest rate ceilings, and restrictions on the range of products and services that banks could offer.1 More generally, several developed countries, most notably the UK, implemented tax hikes in 1960s and early 1970s, especially on corporate income and investment earnings. These developments led financial institutions and businesses to look for alternative venues, to conduct their transactions elsewhere.