Compensating victims of bankrupted financial institutions: a law and economic analysis
Journal of Financial Regulation and Compliance
ISSN: 1358-1988
Article publication date: 10 May 2011
Abstract
Purpose
The purpose of this paper is to understand the incentive effects of existing compensation mechanisms in case of the bankruptcy of a financial institution.
Design/methodology/approach
The paper uses insights of law and economics to predict the effects of compensation mechanisms on the incentives of depositors, financial institutions, financial regulators and government.
Findings
The paper shows that the current compensation system in The Netherlands will not provide sufficient incentives for all stakeholders to prevent the failure of a financial institution. Adjustments to this system are necessary to improve these incentives.
Original/value
The paper examines for the first time the impact of different compensation mechanisms on the incentives of multiple stakeholders. It also shows how these mechanisms influence each other regarding their incentive generating capability. These findings offer important insights for policy makers.
Keywords
Citation
Dijkstra, R.J. and Faure, M.G. (2011), "Compensating victims of bankrupted financial institutions: a law and economic analysis", Journal of Financial Regulation and Compliance, Vol. 19 No. 2, pp. 156-173. https://doi.org/10.1108/13581981111123861
Publisher
:Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited