Corporate Governance of Banks and Financial Institutions: Economic Theory, Supervisory Practice, Evidence and Policy

European Business Organization Law Review (EBOR), Vol. 22, No. 1, pp. 13-37, March 2021

DOI: 10.1007/s40804-020-00201-z

Max Planck Private Law Research Paper No. 21/6

27 Pages Posted: 31 Mar 2021

See all articles by Klaus J. Hopt

Klaus J. Hopt

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

Multiple version iconThere are 2 versions of this paper

Abstract

Banks are special, and so is the corporate governance of banks and other financial institutions. Empirical evidence, mostly gathered after the financial crisis, confirms this. Banks practicing good corporate governance in the traditional, shareholder-oriented style fared less well than banks having less shareholder-prone boards and less shareholder influence. The special governance of banks and other financial institutions is firmly embedded in bank supervisory law and regulation. Most recently there has been intense discussion on the purpose of (non-bank) corporations. For banks stakeholder governance and, more particularly, creditor or debtholder governance is more important than shareholder governance. The implications of this for research and reform are still uncertain. A key problem is the composition and qualification of the board. The legislative task is to enhance independent as well as qualified control. The proposal of giving creditors and even supervisors a special seat in the board is not convincing. Other important special issues of bank governance are for example the duties and liabilities of bank directors in particular as far as risk and compliance are concerned, but also the remuneration paid to bank directors and senior managers or key function holders. Claw-back provisions, either imposed by law or introduced by banks themselves, exist already in certain countries and are beneficial. Much depends on enforcement, an understudied topic.

Note: This article is published in the Max Planck Private Law Research Paper Series through Open Access funding provided by Max Planck Society. It is distributed under the terms of the Creative Commons Attribution 4.0 International License (CC BY 4.0). No changes were made to the article. As published in: European Business Organization Law Review 22 (2021), 13–37, DOI: 10.1007/s40804-020-00201-z.

Keywords: Corporate governance, Economics of bank governance, Debtholder governance, Purpose of the (bank) corporation, Financial institutions, Bank regulation, Bank supervision

Suggested Citation

Hopt, Klaus J., Corporate Governance of Banks and Financial Institutions: Economic Theory, Supervisory Practice, Evidence and Policy. European Business Organization Law Review (EBOR), Vol. 22, No. 1, pp. 13-37, March 2021, DOI: 10.1007/s40804-020-00201-z, Max Planck Private Law Research Paper No. 21/6, Available at SSRN: https://ssrn.com/abstract=3816742

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 the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Do you want regular updates from SSRN on Twitter?

Paper statistics

Downloads
379
Abstract Views
928
rank
29,009
PlumX Metrics