Corporate Governance and Banks: How Justified is the Match?

Elst, C.F. van der

doi:10.2139/ssrn.2562072

Cited by 5 publications

(7 citation statements)

References 8 publications

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“…There is extensive literature that examines corporate governance in banks and how it differs from that in nonfinancial firms (Becht, Bolton, & Roell, ; Caprio & Levine, ; Devriese, Dewatripont, Heremans, & Nguyen, ; Hopt, ; Laeven, ; Levine, ; Macey & O'Hara, ; Mülbert, ; (Mehran & Mollineaux, ) Van der Elst, ) . These studies examine the special attributes of banks that have given rise to bank governance structures that differ from those of manufacturing firms.…”

Section: What Is Special About Corporate Governance Of Banks?mentioning

confidence: 99%

“…To evaluate board effectiveness in banks, it is important to understand how the banks are typically governed and whether there is a difference between boards of directors of banks and of nonfinancial companies. This issue is particularly important because many regulations have proposed a “one‐size‐fits‐all approach,” meaning governance regulations should be applied to every firm, regardless of the industry (Adams & Mehran, ; Van der Elst, ). The existing literature, which is largely empirical, grapples primarily with the following issues: How effective are boards in performing their monitoring function of banks?…”

Section: Governance Mechanismsmentioning

confidence: 99%

“…The aim is to evaluate the differences in governance structures. The main questions have been whether these differences are irrelevant or whether these differences indeed might constitute an industry specificity that should be considered by policymakers (Adams & Mehran, ; Belkhir, ; de Andres & Vallelado, ; Macey & O'Hara, ; Van der Elst, ) . In comparing board independence between banks and nonfinancial firms, empirical research shows consistent differences.…”

Section: Governance Mechanismsmentioning

confidence: 99%

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Corporate Governance in Banks

John¹,

Masi²,

Paci³

2016

Corporate Governance

126

112

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Manuscript Type: ReviewResearch Question/Issue: We survey the literature on corporate governance in banks in the US and international settings. We discuss how the specialness of banks, deposit insurance, high bank leverage, and bank regulation interact with bank governance. We evaluate bank governance from three perspectives: (1) maximizing bank equity value, (2) maximizing total enterprise value, and (3) maximizing social objectives. Our survey includes evidence on how bank governance differs from that of manufacturing firms. We also survey studies on managerial incentives in banks and their implications for bank performance and risk taking before and during the 2007-2008 financial crisis.Research Findings/Insights: The high leverage (usually above 90 percent) of banking institutions gives rise to a trade-off between strengthening equity governance and maximizing enterprise value. Aligning managers very closely with shareholders can give rise to strong incentives for risk shifting to the detriment of firm value. The bank risk choices might also go against the societal objectives of a stable financial system. Theoretical/Academic Implications: We provide a framework for the optimal design of bank governance and bank regulation, considering the objectives of both depositors and society-at-large in addition to those of bank shareholders. This framework could be especially important in determining risk choices by banks and the effects of such on the stability of the financial system. Practitioner/Policy Implications: Our analysis of the literature surveyed has policy implications for bank regulation, top-management compensation in banks, and directives for design of governance in banks. We discuss implications for direct regulation of banks and regulation of bank governance. The findings surveyed provide guidance for board independence, board size, board composition, and incentive features in top-management compensation.

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Section: What Is Special About Corporate Governance Of Banks?mentioning

confidence: 99%

Section: Governance Mechanismsmentioning

confidence: 99%

Section: Governance Mechanismsmentioning

confidence: 99%

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Corporate Governance in Banks

John¹,

Masi²,

Paci³

2016

Corporate Governance

126

112

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“…The proportion of equity on their balance sheet is multiple times smaller than in other industries. 72 This inherently follows from the business model of banks, which consists of transforming shortterm deposits into long-term loans and thus presupposes numerous investments by depositors and bondholders. 73 Moreover, leverage is stimulated by government guarantees since -as explained above -it makes debt a cheap source of financing.…”

Section: High Leverage Ratiomentioning

confidence: 99%

A Cross-Sectoral Analysis of Corporate Governance Provisions: About Forests and Trees

Vos¹,

Morbée²,

Cools³

et al. 2019

European Financial Regulation

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The crisis aftermath: new regulatory paradigms (Centre for Economic Policy Research 2012).12 The term 'significant' is defined further in section III. 13 Commission, 'Proposal of 20 July 2011 for a Directive of the European Parliament and of the Council on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms and amending Dir 2002/87/EC of the European Parliament and of the Council on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate' COM(2011) 453 final, 8 (after 'Proposal CRD IV').14 John Armour and others, Principles of Financial Regulation (Oxford, OUP, 2016) 433. 15 The rules in CRD IV also apply to certain types of investment firms as defined by MiFID, see further section III.

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“…37 Consistently with this, for instance, Adams and Mehran 12 There is an abundant literature that examines the particularities of banks that make them unique and justify a separate analysis. 3,5,12,27,57,61,62,[66][67][68][69][70][71][72][73] This can be summarized in the following way:…”

Section: Why Are Banks Special and How Their Specificities Impact On mentioning

confidence: 99%

Bank governance and performance: a survey of the literature

et al. 2017

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This research has been financed by the European Regional Development Fund through COMPETE 2020-Programa Operacional Competitividade e Internacionalização (POCI) and by Portuguese public funds through FCT (Fundação para a Ciência e a Tecnologia) in the framework of the project POCI-01-0145-FEDER-006890 Este trabalho foi financiado pelo Fundo Europeu de Desenvolvimento Regional (FEDER) através do COMPETE 2020-Programa Operacional Competitividade e Internacionalização (POCI) e por fundos nacionais através da FCT (Fundação para a Ciência e a Tecnologia) , no âmbito do projeto

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Corporate Governance and Banks: How Justified is the Match?

Cited by 5 publications

References 8 publications

Corporate Governance in Banks

Corporate Governance in Banks

A Cross-Sectoral Analysis of Corporate Governance Provisions: About Forests and Trees

Bank governance and performance: a survey of the literature

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