Bank Boards: What Has Changed Since the Financial Crisis?

46 Pages Posted: 31 Jan 2019 Last revised: 18 Aug 2021

See all articles by Shivaram Rajgopal

Shivaram Rajgopal

Columbia Business School

Suraj Srinivasan

Harvard Business School

Yu Ting Forester Wong

University of Southern California - Leventhal School of Accounting

Date Written: January 1, 2019

Abstract

Abstract: We investigate how board oversight of U.S. banks has changed since the 2008 financial crisis. We review several expert reports that investigated the crisis to identify key board oversight deficiencies and group them into four categories: (i) lack of enterprise risk management, (ii) lack of risk awareness on the board, (iii) group think among bank directors and (iv) busy directors, especially the chairperson. Our empirical analysis examines improvements, if any, in each of these categories for 95 U.S. banks post-crisis (2008-2015), relative to the pre-crisis period (2000-2007). We find significant structural improvements to the banks’ enterprise risk management structure. Virtually every bank now has a Chief Risk Officer (CRO), and the number of banks with an independent risk committee and a committee devoted to reputation management has also increased significantly. With respect to risk awareness, we find that newly appointed bank directors are much more likely to have prior risk management, banking and specialty finance experience. There are also significantly more risk-related discussions within the financial statements, which indicate a heightened level of risk awareness. With respect to group think and busy board members, we find mixed evidence of progress. We document greater gender diversity and more empowered corporate governance and nominating committee after the crisis. In sum, at least some aspects of bank boards appear to have responded to the financial crisis.

Keywords: Corporate Governance, Financial Crisis, Banks, Bank Board, Board of Director, Diversity, Chairperson, 2008 Crisis

JEL Classification: m41, m48

Suggested Citation

Rajgopal, Shivaram and Srinivasan, Suraj and Wong, Yu Ting Forester, Bank Boards: What Has Changed Since the Financial Crisis? (January 1, 2019). Available at SSRN: https://ssrn.com/abstract=2722175 or http://dx.doi.org/10.2139/ssrn.2722175

Shivaram Rajgopal

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Suraj Srinivasan

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facId=10700

Yu Ting Forester Wong (Contact Author)

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

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