Corporate Governance of Banks after the Financial Crisis

"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

5 Pages Posted: 29 Aug 2011 Last revised: 23 Dec 2013

Klaus J. Hopt

Max Planck Institute for Comparative and International Private Law; European Corporate Governance Institute (ECGI)

Date Written: August 29, 2011

Abstract

Corporate governance of banks differs considerably from general corporate governance. For banks the scope of corporate governance goes beyond the shareholders (equity governance) to include debtholders (debt governance). From the perspective of bank supervision debt governance is the primary governance concern. Equity governance and debt governance face partly parallel and partly divergent interests of management, shareholders, debtholders, and supervisors. Failures in the corporate governance of banks contributed to the financial crisis. Corporate law reforms are less suited for bank governance, strengthening supervisory law requirements is more promising. Prominent proposals include clearer separation of the management and control function, possibly by a two-tier board as in Switzerland and Belgium; establishment of a separate risk committee of the board or an independent chief risk officer; dealing with the problem of complex or opaque bank structure; and group-wide corporate governance in single entities as well as in the bank group. Appropriate supervisory law requirements are needed for bank-internal procedures, specifically for risk management, internal control and compliance, and internal and external auditing. Supervisory fit and proper tests for the board, the management and major shareholders of banks are useful. Qualification and experience of bank board members is at least as important as independence. But the severe requirements of bank regulation and bank supervision must not spill over to the corporate governance of the firm.

Keywords: Corporate governance of banks, equity governance vs. debt governance, financial crisis and bank reform proposals, supervisory requirements as to bank governance, separation of management and control by a bank two-tier board, bank group-wide corporate governance, bank risk management, fit and proper

JEL Classification: G3, G21, G28, K22

Suggested Citation

Hopt, Klaus J., Corporate Governance of Banks after the Financial Crisis (August 29, 2011). "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. Available at SSRN: https://ssrn.com/abstract=1918851 or http://dx.doi.org/10.2139/ssrn.1918851

Klaus J. Hopt (Contact Author)

Max Planck Institute for Comparative and International Private Law ( email )

Mittelweg 187
D-20148 Hamburg
Germany
+49 40 41 90 02 05 (Phone)
+49 40 41 90 03 02 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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