Banks’ bonuses versus the risk of banking system’s collapse

High bonuses for banks’ executives are not only an issue of conflicts between companies’ stakeholders, and it is not just a subject of ethics. The context of today’s fragile European economy’s recovery sends a message - new risk management challenges are ahead.

Banking system is the most important sector of any financial system as its main purpose is resource allocation. So, well operating banking system when firms ensure effective risk management of liquidity and capital adequacy by themselves is essential for economy growth. However, besides the troubles to liquidate the toxic assets after the subprime mortgage crisis the other, maybe even complicated challenge should be mastered. It is banks’ exposure to at least risky and the highly liquid class of assets - sovereign bonds, the bonds of the largest borrowers in the economy, the obligations those credibility is declining in the markets.

So, who is going to rescue the financial system once again in the event of irresponsible banks’ bonuses when actually there are no additional recourses for the bailout?