The Nature of Corporate Governance in Banking

Sergio Scandizzo

This chapter will examine the peculiarities of corporate governance of banks as they are presented in economic theory, as well as the central role that dealing with uncertain future outcomes takes in banking. Risk, and the approach the various decision-makers have towards it, are also at the centre of the conflicts that arise in the management of banking activities. However, sometimes a lack of such conflicts can be equally detrimental to governance objectives, particularly when the short-term interests of managers and shareholders are aligned. Finally, we will look at the various stakeholders’ points of view and conclude that another key feature of banking is an unusually large number of stakeholders, all fundamentally – but in different ways – concerned with risk.

WHAT IS (REALLY) SPECIAL ABOUT BANKS

The previous chapter highlighted a number of issues that run through the debate on corporate governance, all of which are of course relevant to the governance of banking organisations. Banks, however, present several characteristics that set them apart from other firms with regard to the opaqueness of their business activities and their role and relationship with the wider