- Regulation of banks — Investment business — Supervision
This chapter assesses the arguments for and against reforms which aim to make bank boards more sensitive to the risks of negative externalities in the bank’s operating model. It looks at mechanisms for increasing the influence on the board of two groups likely to suffer from the negative externalities of board failure, namely, society at large and creditors. Prudential supervisors are one obvious representative of the interests of society as a whole and a potential source of risk-averse influence on boards, since the prudential supervisor’s principal goal is the safety and soundness of the banking system. Possible additional or alternative sources of caution in relation to bank board decision-making are the holders of bank debt. The chapter then argues that it is important to consider to change the composition of the boards of the banks by giving interested non-shareholders a say or even a seat in the board.