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Bank management between shareholders and regulators

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  • Morten Balling
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  • Christian Harm
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    Abstract

    This essay discusses the corporate governance of banks. Bank managers must balance competing demands from shareholders and regulators, which distinguishes banks from most other firms. The essay is structured into three parts. The theoretical section first broadly defines management and its governance as a process with certain built-in ambiguities that defy a strict notion of accountability. Then, a focus on financial stakeholders clarifies the different governance objectives of owners and creditors, and integrates bank regulation into the concept of debt governance. The empirical section surveys the extant literature to derive insights as to which theoretical predictions have so far received more wide-spread support, and in which areas the insights generated by researchers may still be too vague to lend themselves as a basis for policy advice. The third section then spells out a recommendation for a logically consistent regime in which shareholders (equity governance) and regulators (debt governance) can meaningfully coexist in their quest to guide and constrain bank managers.

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    Bibliographic Info

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    This book is provided by SUERF - The European Money and Finance Forum in its series SUERF Studies with number 21 and published in 2002.

    ISBN: 978-3-902109-13-2
    Handle: RePEc:erf:erfstu:21

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    Related research

    Keywords: banks; bank regulation; corporate governance;

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    References

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    1. Yermack, David, 1995. "Do corporations award CEO stock options effectively?," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 237-269.
    2. Yermack, David, 1997. " Good Timing: CEO Stock Option Awards and Company News Announcements," Journal of Finance, American Finance Association, vol. 52(2), pages 449-76, June.
    3. Whidbee, David A. & Wohar, Mark, 1999. "Derivative activities and managerial incentives in the banking industry," Journal of Corporate Finance, Elsevier, vol. 5(3), pages 251-276, September.
    4. Nikhil Varaiya & David Ely, 1997. "Assessing the Resolution of Insolvent Thrift Institutions post FIRREA: The Impact of Resolution Delays," Journal of Financial Services Research, Springer, vol. 11(3), pages 255-282, June.
    5. Larry D. Wall & David R. Peterson, 1994. "Bank holding company capital targets in the early 1990s: the regulators versus the markets," Working Paper 94-11, Federal Reserve Bank of Atlanta.
    6. Peter R Haiss & Gerhard Fink, 1998. "Seven Years of Financial Market Reform in Central Europe," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    7. George Gelauff & Corina den Broeder, 1997. "Governance of stakeholder relationships: The German and Dutch experience," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    8. Susan Woodward, 1988. "A Transaction Cost Analysis of Banking Activity and Deposit Insurance," Cato Journal, Cato Journal, Cato Institute, vol. 7(3), pages 683-699, Winter.
    9. Rolf Skog, 1997. "Does Sweden Need a Mandatory Bid Rule? A critical analysis," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    10. Verbrugge, James A & Jahera, John S, Jr, 1981. "Expense-Preference Behavior in the Savings and Loan Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(4), pages 465-76, November.
    11. Cem Karacadag & Michael W. Taylor, 2000. "The New Capital Adequacy Framework: Institutional Constraints and Incentive Structures," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    12. Cem Karacadag & Michael Taylor, 2000. "The New Capital Adequacy Framework," IMF Working Papers 00/93, International Monetary Fund.
    13. Warner, Jerold B. & Watts, Ross L. & Wruck, Karen H., 1988. "Stock prices and top management changes," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 461-492, January.
    14. John Calverley & Sarah Hewin & Kevin Grice, 2000. "Emerging Stock Markets After the Crisis," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    15. Wahal, Sunil, 1996. "Pension Fund Activism and Firm Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(01), pages 1-23, March.
    16. Welch, Ivo, 1997. "Why Is Bank Debt Senior? A Theory of Asymmetry and Claim Priority Based on Influence Costs," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 1203-36.
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    Cited by:
    1. repec:onb:oenbwp:y:2010:i:1:b:1 is not listed on IDEAS
    2. Sándor Gardó, 2010. "Bank Governance and Financial Stability in CESEE: A Review of the Literature," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1.
    3. Paula Bongini, 2003. "The EU Experience in Financial Services Liberalization: A Model for GATS Negotiations?," SUERF Studies, SUERF - The European Money and Finance Forum, number 2003/2 edited by Morten Balling.
    4. Bert Scholtens & Dick van Wensveen, 2003. "The Theory of Financial Intermediation: An Essay On What It Does (Not) Explain," SUERF Studies, SUERF - The European Money and Finance Forum, number 2003/1 edited by Morten Balling.
    5. Jean-Paul Abraham & Peter Van Dijcke, 2002. "European Financial Cross-Border Consolidation: At the crossroads in Europe? By exception, evolution or revolution?," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.

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