Abstract
Chapter 7 of the Stage 2 Key Code and Advanced Handbook examines the distinguishing feature of banks in the relational approach. We open by examining the similarities and differences with the Enron collapse examined in detail in Stage 1. Then the distinguishing features of banks are examined in detail – the maturity of debt, liquidity, leverage and the interconnectedness of banks. There follows a review of deposit insurance, government bailout and risk-taking including Hopt’s risk-taking and free-riding and the recognition that depositors are stakeholders in banks. Systemic risk is then examined including the EC’s ‘domino effect’ and differing risk preferences for shareholders and depositors. Conflicts of Interest are identified and the perceived weaknesses in governance codes.
The chapter concludes with the recognition that specific governance variables for the distinguishing features of banks and specialised bank regulation are needed to introduce the [BankPrudReg] (+) variable for banks – the regulatory, prudential and supervisory regime. Also proposed are bank-specific governance variables for deposit insurance, bailout and the effects of risk-taking, maturity transformation, liquidity and risk management.
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Notes
- 1.
Donald Nordberg, “Waste Makes Haste: Sarbanes-Oxley, Competitiveness and the Subprime Crisis”, (10 May 10, 2008), accessed 3 April 2017 at SSRN: http://ssrn.com/abstract=1131674, 20–22 (reference to table omitted).
- 2.
Ibid, Table 4, Enron and subprime compared, 22 (table format removed and bullet-points added).
- 3.
Brian R Cheffins, “Did Corporate Governance ‘Fail’ During the 2008 Stock Market Meltdown? The Case of the S&P 500” ECGI – Law Working Paper No. 124/2009, (1 May 2009), accessed 13 April 2017 at SSRN: http://ssrn.com/abstract=1396126, 1.
- 4.
Ibid.
- 5.
Francesco de Zwart, Enhancing Firm Sustainability Through Governance, The Relational Corporate Governance Approach, Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing, Corporations, Globalisation and the Law Series, July 2015, (‘Stage 1’).
For Stage 1, see also, Francesco de Zwart, “Enhancing firm sustainability through governance – Part 1: The challenge of corporate governance” (2018) 33(2) Aust Jnl of Corp Law 144 and Francesco de Zwart, “Enhancing firm sustainability through governance – Part 2: The framework of the relational corporate governance approach” (2019) 34(1) Aust Jnl of Corp Law 27.
- 6.
Cheffins, above n 3, 2.
- 7.
Klaus J Hopt, “Corporate Governance of Banks and Other Financial Institutions After the Financial Crisis”, (2013) 13(2) Journal of Corporate Law Studies 219–253 (Part B); “Corporate Governance of Banks after the Financial Crisis”, in E Wymeersch, K J Hopt and G Ferrarini, eds., Financial Regulation and Supervision, A post-crisis analysis, Oxford University Press 2012, pp 337–367 (Part A); ECGI – Law Working Paper No. 207. (1 April 2013), accessed 13 April 2017 at SSRN: http://ssrn.com/abstract=2212198, 4 (footnotes omitted).
- 8.
Peter O Mülbert, “Corporate Governance of Banks after the Financial Crisis – Theory, Evidence, Reforms”, ECGI – Law Working Paper No. 130/2009, (April 2010), accessed 8 April 2017 at SSRN: https://ssrn.com/abstract=1448118
- 9.
Ibid, 10 (footnote omitted).
- 10.
Ibid.
- 11.
Ibid.
- 12.
Klaus J Hopt, “Corporate Governance of Banks after the Financial Crisis”, in E Wymeersch, K J Hopt, G Ferrarini, eds., Financial Regulation and Supervision, A post-crisis analysis, Oxford University Press 2012, pp 337–367; ECGI – Law Working Paper No. 181/2011, (29 August 2011), accessed 13 April 2017 at SSRN: http://ssrn.com/abstract=1918851, 4.
- 13.
Frederick Tung and Xue Wang, “Bank CEOs, Inside Debt Compensation, and the Global Financial Crisis”, Boston Univ. School of Law Working Paper No. 11–49, (11 December 2012), accessed 3 April 2017 at SSRN: http://ssrn.com/abstract=1570161, 1–2.
- 14.
Christopher M Bruner, “Corporate Governance Reform in a Time of Crisis” (2011) 36(2) Journal of Corporation Law 309; Washington & Lee Legal Studies Paper No. 2010–9, (30 May 2010), accessed 6 April 201at SSRN: http://ssrn.com/abstract=1617890, 312.
- 15.
Ibid.
- 16.
See the discussion in sections 2.6.1–2.6.8 of Stage 1, above n 5, pp 36–62 for the construction of the eight governance factors.
- 17.
Hopt, above n 7, 5 (footnote omitted).
- 18.
The Bank for International Settlements, The Basel Committee on Banking Supervision, Guidelines, Corporate Governance Principles for Banks, July 2015, accessed 21 March 2017 at http://www.bis.org/bcbs/publ/d328.htm, (‘BCBS Guidelines 2015’), Para 2, p 3.
- 19.
Ibid, Para 3, p 3 (emphasis added).
- 20.
See the discussion in section 2.6.6 of Stage 1, above n 5, pp 47–54 for the construction of the Stakeholders Factor No 6: Identification, Participation and Protection of Stakeholder Interests.
- 21.
See the discussion in sections 2.3.1–2.3.3 of Stage 1, above n 5, pp 28–31 for the construction of the ‘three relational axes of good governance’.
- 22.
See also David Walker, A review of corporate governance in UK Banks and other financial industry entities, Final recommendations, 26 November 2009, The Walker Review secretariat, accessed 14 March 2017 at http://www.http://webarchive.nationalarchives.gov.uk/+/http:/www.hm-treasury.gov.uk/d/walker_review_261109.pdf (‘Walker Review 2009’), Para 1.23, p 30.
- 23.
BCBS Guidelines 2015, above n 18, Para 11, p 4.
- 24.
European Commission, Green Paper, Corporate Governance in Financial Institutions and Remuneration Policies, COM(2010) 284 final, Brussels, 2 June 2010, accessed 23 March 2017 at http://www.ecgi.org/commission/documents/green_paper_com2010_284_en.pdf (‘EC Green Paper 2010’), section 2, p 4.
- 25.
Ibid.
- 26.
- 27.
EC Green Paper 2010, above n 24, section 3.1, p 5.
- 28.
Ibid.
- 29.
Stage 1, above n 5, pp 143–186.
- 30.
EC Green Paper 2010, above n 24, section 3.2, p 6.
- 31.
See discussion of the construction of the [NationGov] + variable in sections 7.3.1.3–7.3.1.3.2 of Stage 1, above n 5, pp 202–6.
- 32.
See discussion in sections 7.3.1.3–7.3.1.3.2 of Stage 1, above n 5, pp 202–206.
- 33.
- 34.
Ibid.
- 35.
- 36.
Ibid.
- 37.
- 38.
- 39.
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de Zwart, F. (2022). Distinguishing Features of Banks for the Relational Approach. In: The Key Code and Advanced Handbook for the Governance and Supervision of Banks in Australia. Springer, Singapore. https://doi.org/10.1007/978-981-16-1710-2_7
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