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Governance of Financial Institutions edited by Busch, Danny; Ferrarini, Guido; van Solinge, Gerard (31st January 2019)

Part II Governance Structures and Regulation, 6 Non-Shareholder Voice in Bank Governance: Board Composition, Performance, and Liability

Paul Davies, Klaus J Hopt

From: Governance of Financial Institutions

Edited By: Danny Busch, Guido Ferrarini, Gerard van Solinge

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.date: 23 August 2019

Subject(s):
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.

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