Abstract
Chapter 4 examines the relationship between corporate governance and banking failures. It explores the concept of corporate governance in the banking sector, applying insights from agency theory. This chapter discusses how to reduce agency costs and the impact of these costs on banking. It also addresses the dilemmas faced by shareholders, depositors, and directors in the context of corporate governance, illustrating the complexities of managing these relationships in preventing banking failures.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
Examples of Supra-national institutions are the Basel Committee on Banking Supervision (BCBS) and the Organisation for Economic Co-operation and Development (OECD). In Europe we find the European Banking Authority (EBA) and the Single Supervisory Mechanism (SSM). In the United States we mainly find The Federal Reserve System one recent guideline issued from this institution was the ‘Supervisory Expectations for Boards of Directors’ in 2017, clarifying the roles and responsibilities of boards of bank holding companies, savings and loan holding companies, and state member banks.
- 2.
Established in 1974 by the Group of Ten’s central bank chiefs, the Basel Committee on Banking Supervision (BCBS) acts as a collaborative body for banking oversight authorities. It expanded its membership notably in 2009 and again in 2014. As of 2019, the BCBS brought together 45 regulatory representatives across 28 jurisdictions, combining central banks and dedicated banking regulators. The BCBS serves as the leading international body for setting standards for the prudential oversight of banks and offers a platform for consistent collaboration on matters related to banking supervision.
- 3.
Principle 1: Board’s overall responsibilities; Principle 2: Board qualifications and composition; Principle 3: Board’s own structure and practices; Principle 4: Senior management; Principle 5: Governance of group structures; Principle 6: Risk management function; Principle 7: Risk identification, monitoring and controlling; Principle 8: Risk communication; Principle 9: Compliance; Principle 10: Internal audit; Principle 11: Compensation; Principle 12: Disclosure and transparency 36; Principle 13: The role of supervisors 38.
- 4.
‘Ownership dispersion’ refers to a scenario where shares are distributed among a large number of shareholders, with no single entity or individual possessing a controlling stake. In essence, it is an ownership structure without significant shareholders (often termed ‘blockholders’) who can exert influence over the Annual Shareholders’ Meeting, and consequently, the approval or removal of directors. This kind of structure is typical for large public companies particularly in the Anglo-Saxon context.
References
Buchetti, B., & Santoni, A. (2022a). Corporate governance (CG) theories and the banking sector. In Corporate governance in the banking sector: Theory, supervision, ESG and real banking failures (pp. 19–36). Springer.
Buchetti, B., & Santoni, A. (2022b). Corporate governance in the banking sector (CGBS): A literature review. In Corporate governance in the banking sector: Theory, supervision, ESG and real banking failures (pp. 37–91).
Buchetti, B., & Santoni, A. (2022c). Corporate governance in the banking sector: Theory, supervision, ESG and real banking failures. Springer Nature.
Buchetti, B., & Santoni, A. (2022d). The meaning of corporate governance and its role in the banking sector. In Corporate governance in the banking sector: Theory, supervision, ESG and real banking failures (pp. 1–18). Springer.
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law and Economics, 26(2), 301–325.
Friedman, M. (2007). The social responsibility of business is to increase its profits. In Corporate ethics and corporate governance (pp. 173–178). Springer.
Gandhi, P., & Lustig, H. (2015). Size anomalies in U.S. bank stock returns. The Journal of Finance, 70, 733–768.
Jensen, M. C., & Meckling, W. H. (1979). Rights and production functions: An application to labor-managed firms and codetermination. The Journal of Business, 52(4), 469–506. https://www.jstor.org/stable/2352442.
Merton, R. C. (1977). An analytic derivation of the cost of deposit insurance and loan guarantees an application of modern option pricing theory. Journal of Banking & Finance, 1, 3–11.
Morgan, D. P. (2002). Rating banks: risk and uncertainty in an opaque industry American Economic Review, 92(4), 874–888.
Thakor, A. V. (2014). Bank capital and financial stability: an economic tradeoff or a faustian bargain? Annual Review of Financial Economics, 6, 185–223.
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2024 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Abidi, N., Buchetti, B., Crosetti, S., Miquel-Flores, I. (2024). Corporate Governance and Banking Failures. In: Why Do Banks Fail and What to Do About It. Contributions to Finance and Accounting. Springer, Cham. https://doi.org/10.1007/978-3-031-52311-3_4
Download citation
DOI: https://doi.org/10.1007/978-3-031-52311-3_4
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-031-52310-6
Online ISBN: 978-3-031-52311-3
eBook Packages: Business and ManagementBusiness and Management (R0)