Abstract
The current financial crisis has vividly demonstrated that due to the incentives of bank shareholders to take excessive risks on behalf of other stakeholders and society, banking governance based exclusively on shareholder interests results in systemically fragile banks and financial instability.
The key challenge is to establish a bank governance framework in which financial institutions begin to perform their central function of serving and supporting long-term economic development. The recent change in the bank resolution mechanism legislation for banks in the EU from a bail-out to a bail-in approach that creates a new group of bank stakeholders with strong incentives to oppose excessive risk-taking – uninsured debtholders – can be seen as an opportunity to enact substantial change in bank governance.
Subject
General Business, Management and Accounting
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