Is Insufficient Supervisory Board Competence a Risk Factor for Banks?

The downfall of Credit Suisse should serve as a lesson that supervisory board competence determines the long-term risk of a bank. In a much-cited study, we investigated the relationship between competent board supervision and the performance of German banks during the 2008/2009 financial crisis. This policy brief summarizes the results of our updated study, which shows that despite legislative efforts, there is still a long way to go. Key Messages The downfall of Credit Suisse should serve as a lesson that supervisory board competence determines the long-term risk of a bank. The relationship between competent board supervision and bank performance has been confirmed for many countries since our much-cited study of German banks during the 2008/2009 financial crisis. However, our updated study shows that despite legislative efforts, board competence in Germany has improved only slightly. In particular, public banks are lagging behind. We recommend that bank supervisors systematically measure, track, and report bank board competence.