Corporate governance: What’s special about banks?

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This review surveys the literature on the corporate governance of banks. Traditional corporate governance mechanisms, such as concentrated ownership and takeover threats, in principle, also apply to banks. However, banks have special traits and are heavily regulated, preventing natural forms of governance to arise and rendering many of these governance mechanisms ineffective. Financial regulation can in principle compensate for weaknesses in corporate governance but in practice has had limited effectiveness in protecting the interests of banks’ stakeholders, because of, for instance, unproductive interactions between regulatory restraints and existing governance arrangements. The review concludes with a discussion of corporate governance and regulatory reforms to enhance the safety and soundness of banks. These proposals range from placing more emphasis on value creation for bank stakeholders other than shareholders to reducing risk-shifting incentives for bank managers and shareholders.
Original languageEnglish
Pages (from-to)63-92
JournalAnnual Review of Financial Economics
Volume5
DOIs
Publication statusPublished - 2013

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Corporate governance
Governance
Stakeholders
Shareholders
Safety
Corporate governance mechanisms
Financial regulation
Governance mechanisms
Managers
Value creation
Threat
Corporate governance reform
Regulatory reform
Placing
Incentives
Risk-shifting
Concentrated ownership
Interaction

Cite this

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title = "Corporate governance: What’s special about banks?",
abstract = "This review surveys the literature on the corporate governance of banks. Traditional corporate governance mechanisms, such as concentrated ownership and takeover threats, in principle, also apply to banks. However, banks have special traits and are heavily regulated, preventing natural forms of governance to arise and rendering many of these governance mechanisms ineffective. Financial regulation can in principle compensate for weaknesses in corporate governance but in practice has had limited effectiveness in protecting the interests of banks’ stakeholders, because of, for instance, unproductive interactions between regulatory restraints and existing governance arrangements. The review concludes with a discussion of corporate governance and regulatory reforms to enhance the safety and soundness of banks. These proposals range from placing more emphasis on value creation for bank stakeholders other than shareholders to reducing risk-shifting incentives for bank managers and shareholders.",
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Corporate governance : What’s special about banks? / Laeven, L.

In: Annual Review of Financial Economics, Vol. 5, 2013, p. 63-92.

Research output: Contribution to journalArticleScientificpeer-review

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