Understanding the Role of Corporate Governance in Financial Institutions: A Research Agenda

32 Pages Posted: 1 Mar 2017

See all articles by Guido Ferrarini

Guido Ferrarini

University of Genoa - Law Department and Centre for Law and Finance; European Corporate Governance Institute (ECGI)

Date Written: March 2017

Abstract

After the 2008 financial crisis, a substantial part of the blame for the numerous bank failures that occurred as a result of the crisis has been put on corporate governance. Consequently, regulation and supervision have been enhanced both as a complement to the corporate governance of financial institutions and as a substitute for the same in areas where governance failures appear more evident. In this paper, I argue that the swinging of the pendulum between corporate governance and financial regulation may have gone too far, as a result of the ‘nirvana fallacy’ that often affects reformers. I suggest, therefore, that corporate governance should recover some of the lost grounds, possibly through spontaneous enhancement of the role of boards by financial institutions and cautious deregulation of the governance mechanisms by supervisory authorities. I also suggest that proposals to reform corporate law for financial institutions, for instance by restricting the scope of the business judgement rule, should be rejected, as this would affect entrepreneurship and stifle innovation in the financial sector.

Keywords: corporate governance, financial institutions, banks, banking regulation, financial regulation, financial supervision, business judgement rule, fiduciary duties, regulatory duties, bankers’ compensation

JEL Classification: G34, G38, K20, K22

Suggested Citation

Ferrarini, Guido, Understanding the Role of Corporate Governance in Financial Institutions: A Research Agenda (March 2017). European Corporate Governance Institute (ECGI) - Law Working Paper No. 347/2017. Available at SSRN: https://ssrn.com/abstract=2925721 or http://dx.doi.org/10.2139/ssrn.2925721

Guido Ferrarini (Contact Author)

University of Genoa - Law Department and Centre for Law and Finance ( email )

Via Balbi, 22
16126 Genova, 16100
Italy
+39 010 209 9894 (Phone)
+39 010 209 9890 (Fax)

HOME PAGE: http://www.clfge.org

European Corporate Governance Institute (ECGI)

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

HOME PAGE: http://www.ecgi.org

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