The Corporate Governance of Banks: A Concise Discussion of Concepts and Evidence

20 Pages Posted: 20 Apr 2016

See all articles by Ross Levine

Ross Levine

Stanford University; National Bureau of Economic Research (NBER)

Date Written: September 2004

Abstract

Levine examines the corporate governance of banks. When banks efficiently mobilize and allocate funds, this lowers the cost of capital to firms, boosts capital formation, and stimulates productivity growth. So, weak governance of banks reverberates throughout the economy with negative ramifications for economic development. After reviewing the major governance concepts for corporations in general, the author discusses two special attributes of banks that make them special in practice: Greater opaqueness than other industries and greater government regulation. These attributes weaken many traditional governance mechanisms. Next, he reviews emerging evidence on which government policies enhance the governance of banks and draws tentative policy lessons. In sum, existing work suggests that it is important to strengthen the ability and incentives of private investors to exert governance over banks rather than to rely excessively on government regulators. These conclusions, however, are particularly tentative because more research is needed on how legal, regulatory, and supervisory policies influence the governance of banks.

This paper - a product of the Global Corporate Governance Forum, Corporate Governance Department - is part of a larger effort in the department to improve the understanding of corporate governance reform in developing countries.

Suggested Citation

Levine, Ross, The Corporate Governance of Banks: A Concise Discussion of Concepts and Evidence (September 2004). Available at SSRN: https://ssrn.com/abstract=625281.

Ross Levine (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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