Bank regulation, internal governance, and bank risk: Global evidence

Abstract

We examine the joint effects of bank regulation and internal governance on bank stand-alone and systemic risk. Using a broad international sample, we find that banks with better governance in countries with better regulatory quality have lower risk. These results are stronger in more developed countries and in countries with less concentrated banking sectors. We observe a positive relation between governance and bank risk in the pre-global financial crisis period but document a reversal post-crisis. Overall, our results suggest that bank regulation exerts a positive influence on bank governance, while mitigating the risk-increasing incentives created by shareholder-friendly governance in banks.

Keywords: Bank stand-alone risk, systemic risk corporate governance, bank regulatoon

JEL Classification: G21, G28,G34