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Corporate Governance of Financial Institutions

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Author Info

  • Hamid Mehran

    ()
    (Federal Reserve Bank of New York, New York 10045)

  • Lindsay Mollineaux

    ()
    (Federal Reserve Bank of New York, New York 10045)

Abstract

We identify the tension between dueling expectations of financial institutions as value-maximizing entities that also serve the public interest. We highlight the importance of information in addressing the public desire for banks to be safe yet innovative. Regulators can choose several approaches to increase market discipline and information production. Information production can be mandated outside of markets through increased regulatory disclosure. Regulators can also directly motivate potential producers of information by changing their incentives. Traditional approaches to bank governance may interfere with the information content of prices. Thus, the lack of transparency in the banking industry may be a symptom rather than the primary cause of bad governance. We provide examples of compensation and resolution. Reforms that promote the quality of security prices through information production can improve the governance of financial institutions. Future research is needed to examine the interactions between disclosure, information, and governance.

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File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-financial-110311-101821
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Bibliographic Info

Article provided by Annual Reviews in its journal Annual Review of Financial Economics.

Volume (Year): 4 (2012)
Issue (Month): 1 (October)
Pages: 215-232

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Handle: RePEc:anr:refeco:v:4:y:2012:p:215-232

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Related research

Keywords: financial institutions; governance; disclosure; information; market discipline; financial crisis;

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