Bank Board Research Articles

Outside CEOs onto Bank Boards: The Drivers and Consequences of their Appointment

Outside CEOs from non-financial firms match with boards of lending-oriented banks and are sought for their networks. They do not improve board advising and monitoring but their appointment results in lending expansion, increased bank CEO compensation, and more bank debt for their firms. The matching between outside CEOs of financial firms and bank boards is instead influenced by their expertise and improves board effectiveness. Ultimately, the lending business of banks distorts the incentives of outside CEOs from non-financial firms resulting in them not acting as truly independent directors, whereas CEOs from financial firms are valuable additions to bank boards.

Maduro Board of the Central Bank of Venezuela v. Guaidó Board of the Central Bank of Venezuela and Banco Central de Venezuela and The Governor and Company of the Bank of England heard together with The “Maduro Board” of the Central Bank of Venezuela and The “Guaidó Board” of the Central Bank of Venezuela and Deutsche Bank AG, London Branch

612Governments — Recognition — Rival governments — Venezuela — Disputed 2018 Venezuelan presidential election — Whether Mr Maduro or Mr Guaidó President of Venezuela — Whether Maduro Board or Guaidó Board entitled to give instructions on behalf of Central Bank of Venezuela concerning its assets in EnglandRecognition — Whom United Kingdom Government recognizing as Head of State and Head of Government of Venezuela — Whether United Kingdom Foreign Secretary’s statement constituting recognition of Mr Guaidó as Interim President — Whether United Kingdom Government’s recognition of Mr Guaidó de facto or de jure — Whether United Kingdom Foreign Secretary’s statement of recognition leaving open possibility of continuing implied recognition of Mr Maduro as de facto President — Whether a de facto recognition of Mr Guaidó would violate rule against intervention in internal affairs of a foreign State — “One voice” doctrine — Whether English courts obliged to accept United Kingdom Government’s recognition of Mr Guaidó as conclusive — Foreign act of State doctrine — Whether challenges to validity, under Venezuelan law, of Mr Guaidó’s legislative and executive acts justiciable in English courtsDiplomatic relations — Whether United Kingdom Government’s continued diplomatic relations with Mr Maduro’s representatives in England constituting implied recognition of Mr Maduro as de facto President — The law of England

Why Do Bank Boards Have Risk Committees?

We develop a theory of bank board risk committees. With this theory, such committees are valuable even though there is no expectation that bank risk is lower if the bank has a well-functioning risk committee. As predicted by our theory (1) many large and complex banks voluntarily chose to have a risk committee before the Dodd-Frank Act forced bank holding companies with assets in excess of $10 billion to have a board risk committee, and (2) establishing a board risk committee does not reduce a bank’s risk on average. Using unique interview data, we show that the work of risk committees is consistent with our theory in part. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Effect of corporate governance practices on bank performance: The perspective of board members

The lingering poor financial performance by banks and bank failure in the past three decades, despite various regulatory actions, has led to a debate on the efficacy of the various regulatory actions and the effectiveness of the practices of corporate governance in Nigerian banks (CBN, 2014; Berger, Imbierowicz, & Rauch, 2016). The study seeks to understand how corporate governance practices influence banks’ performance. The qualitative approach purposively selected three banks and three board interview respondents. Using thematic analysis, the results show that, large board size is not sufficient to improve performance but the broader expertise and other resources the directors bring are the critical elements. The study finds consensus that, outsider directors were desirable, as they provide additional expertise, and assist in making strategic input to improve management decisions. Enhanced monitoring and oversight responsibilities and access to information of board committees improve board effectiveness with favourable effects on bank performance. While the moderating effect of female representation with other governance characteristics on bank performance is subject to the female complementary expertise and their proportion of the board, that of foreign directors appear to be negligible. Bank boards are recommended to be of the right caliber and quantity with adequate resources to offer enhanced monitoring and oversight responsibilities

Board Conduct in Banks

We examine private and confidential minutes of board meetings of a majority of Indian banks, and offer insights into the issues tabled and discussed in bank boards. We find that risk issues account for only 10% of the issues tabled with regulation and compliance accounting for the most (41%) followed by business strategy (31%). Only 18% of the issues are deliberated in detail. Examining the minutes of risk management committee meetings, we find that only 31% of the issues tabled are forward-looking. Using a simple model, we infer that bank boards under-invest in risk and over-invest in regulation and compliance.

Why Do Bank Boards Have Risk Committees?

We develop a theory of bank board risk committees. With this theory, such committees are valuable even though there is no expectation that bank risk is lower if the bank has a well-functioning risk committee. As predicted by our theory (1) many large and complex banks voluntarily chose to have a risk committee before the Dodd-Frank Act forced bank holding companies with assets in excess of $10 billion to have a board risk committee, and (2) establishing a board risk committee does not reduce a bank’s risk on average. Using unique interview data, we show that the work of risk committees is consistent with our theory in part.

ОСОБЛИВОСТІ ОРГАНІЗАЦІЇ ОБЛІКОВОГО ПРОЦЕСУ В БАНКІВСЬКИХ УСТАНОВАХ УКРАЇНИ

The article considers the specifics of accounting in domestic banking institutions. The organization of the accounting process in banks is regulated by both domestic accounting regulations and international accounting and financial reporting standards. Based on the analysis of the current regulatory framework, the key aspects of the activities of financial institutions, which should be taken into account when developing the accounting policy of such entities. Business operations that are typical only for banking institutions are credit and deposit operations, currency exchange operations, securities operations, etc. An important difference is also the use of own chart of accounts, which has many significant differences compared to the chart of accounts of enterprises and organizations: taking into account the specifics of banking, a combination of active and passive accounts in one class, allocation of management accounts postings with off-balance sheet accounts by double entry. The accounting policy of a banking institution is an element of regulation of the bank's accounting. Based on the current regulatory framework, it must ensure the effective functioning and interaction of financial, management and tax accounting of the bank. The main purpose of each of these types of accounting is to provide complete, unambiguous, reliable and unbiased information to users about the state of the institution and the results of its activities. The main goal of the bank's accounting policy should be to find ways to reduce the burden on accounting staff by minimizing and simplifying the number of accounting actions and procedures that they need to perform. However, such simplification should not lead to non-performance of part of their duties, late performance or errors in actions (calculations). The principles of accounting, a single methodological basis, the relationship of synthetic and analytical accounting data, chronological and systematic reflection of all business transactions in primary documents, the formation of indicators necessary for bank management and reporting must be observed. The bank's accounting policy is regulated by an internal regulatory document – "Regulations on the bank's accounting policy", which is approved by the bank's board. The accounting policy is subject to mandatory change if the accounting legislation changes and if the reliability and relevance of the reporting information is increased.

The Carrot and the Stick: Bank Bailouts and the Disciplining Role of Board Appointments

We empirically examine the Capital Purchase Program (CPP) used by the US government to bail out distressed banks with equity infusions during the Great Recession. We find strong evidence that a feature of the CPP - the government's ability to appoint independent directors on the board of an assisted bank that missed six dividend payments to the Treasury - helped attenuate bailout-related moral hazard. Banks were averse to these appointments - the empirical distribution of missed payments exhibits a sharp discontinuity at five. Director appointments by the Treasury led to improved bank performance, lower CEO pay, and higher stock market valuations.

The Gender Credibility Gap: All-Male Boards and Substantive Gender Representation in Central Banking

Why do some countries appoint women to central bank boards and others not? Women held only 11% of seats on global central bank boards between 2000 and 2015, with much smaller representation in years prior and even lagging behind the meager 16 % world-wide average percent of women in national cabinets. We argue that the dearth of female central bankers stems from gender’s impact on central bankers’ ability to signal commitments to price stability. Governments that are concerned with inflation often seek central bankers that exude anti-inflationary bona fides. We argue that this trait is often heuristically informed by gender, such that women are especially under-represented where the need for individual bankers to project monetary conservatism is large. We hypothesize that the need is greatest and female central bankers scarcest in countries with histories of inflation, and with independent central banks and flexible exchange rates, both of which highlight central banker’s personal reputation for monetary stability. We test our theories using a new dataset on the gender composition of central bank boards in 114 countries for years 1998-2015 and find support for our theory. Notably, that support is strongest in the context of long-term trends rather than year-to-year changes. That is consistent with work on the long run political effects of memories of inflation and hyperinflation.

Cultural values of parent bank board members and lending by foreign subsidiaries: The moderating role of personal traits

In this study, we investigate how the average cultural values of parent bank board members affect lending by foreign subsidiaries and how this influence is moderated by board members’ personal traits. Using a new dataset that includes information on foreign banks and their parent companies from 66 and 29 countries, respectively, we find that loan growth of foreign subsidiaries is faster when parent boards exhibit, on average, higher uncertainty avoidance and power distance but lower individualism and indulgence. Notably, the identified regularities are significantly moderated by gender, busyness, and firm ownership of parent bank board members.

Bank Board Structure and Loan Syndication

We study the impact of bank board structure on loan syndication and find both monitoring quality and connections of the lead bank’s board have a positive effect on three measures of the ability to syndicate a larger portion of a loan. Board monitoring quality plays a more dominant role during the financial crisis and following a negative reputation shock to the lead arranger. Board member connectedness is dominant for lower reputation lead arrangers. Our results are robust to an instrumental variable approach for endogeneity. Overall, we conclude that lead arranger board quality serves as a credible signal to participant banks.

Women as “gold dust”: Gender diversity in top boards and the performance of Italian banks

AbstractThis paper investigates the effects on riskiness and performance of gender diversity in Italian bank boards. Italy deserves special attention because European comparisons for the 2000s show that it was among the European Union countries where women were least represented in bank boardrooms, and this gap remains even in a quota law regime. Our main econometric results suggest that gender diversity may have a positive impact on the credit portfolio riskiness and on profitability. Both results may be driven by women's higher risk aversion and their higher propensity to monitor activities, suggesting that women are “gold dust” for Italian banks. These findings, obtained by using a unique data set over the period 1995–2010 and by taking into account possible sources of endogeneity, support the effectiveness on bank performance of greater female presence on boards. Moreover, our econometric set‐up could offer a benchmark for further analysis on gender diversity effects for many countries, where a gender quota law is still not in place.

ECONOMIC INTELLIGENCE ANALYSIS WITHIN THE ITALIAN BANKING SYSTEM

The purpose of the present article is to explore and investigate on the nature of the web of relations of the main Italian banks, on the basis of the evolution of the career paths of their relative members of the Board of Directors. The practical implications of the study is associated with the fact that there is a stronger attention by the national and international financial authorities, such as the European Central Bank (ECB) and the National Competent Authorities (NCAs), about the governance in the banks and the theoretical background and practical abilities of the senior management to assume a specific role in a financial institution. That condition determines a situation in which a member of the board of a European bank tends to have previous job experiences from other financial institutions, which can be used as informal liaisons to gathering information and disseminate knowledge, thus shaping the whole banking infrastructure. For that reason, due to the significant consequences of that bond of relations in shaping the entire financial system, the subject of the research consists in trying to measure the Economic Intelligence aptitudes of the most significant Italian banks, which derives from personal relationships constructed and developed by the senior management of the financial intermediaries in their previous job experiences. The novelty of the present article consists in conducting an Economic Intelligence analysis within the Italian banking system. Methodology. By calculating the main centrality indexes (among those offered by the Social Network Analysis discipline) related to each Italian bank within the global banking network constructed on the basis of personal relationships among the relative members of the Board of Directors, it is possible to measure a financial institution’s inclination to have a sort of “influence” in the system, and in the process, to adopt a potential sound and proper Economic Intelligence strategy. The basic result of the paper highlights that, notwithstanding the dimension of a financial institution in the network, a bank could be characterized by significant centrality indexes in a web of social relations, thus having the potential capability to have a certain influence and impact within the entire banking network. In other words, the size of the bank, expressed for example as number of branches, total assets or number of employees, is not the only element to express the capacity of a bank to play a pivotal role in the financial system.

Central Bank Communication and Policy Interest Rate

Central bank communications play an important role in the monetary policy. In the inflation-targeting frameworks, central bank communications might guide public to shape inflation expectations and then determine actual inflation rates through which the policy interest rates policy would manage them. This paper studied the impact and central bank monetary policy communications on the policy interest rate. Unlike other studies, this paper uses two stages. First, we estimate the impact of central bank communication on the inflation expectation gap. Second, we use the estimated value of inflation expectation gap to predict the policy interest rate. The study found evidence that economic agents analyse the Governor Board of Central Bank of Indonesia meeting decisions every month to shape their inflation expectation. Therefore, the difference between inflation expectation and actual inflation tends to narrow. The inflation expectation gap affects the policy interest rates in Indonesia. In other words, the policy interest rates can control the inflation rate and anchor expectations as required by the inflation-targeting framework.

The influence of the Polish Financial Supervision Authority on the Bank's Management Board

Aim: The aim of the article is to analyze the supervisory measures available to the Polish Financial Supervision Authority in relation to the management board of banks operating in Poland and to indicate whether these measures have a real impact on their functioning and internal structure. On this basis, the proposed changes for the Polish supervision model will be indicated. The article is to be the basis for a discussion on the actual possibilities of supervisory authorities in individual European countries.
 
 Design/ Research methods: dogmatic and legal method, reflection on the Polish banking law, Polish and foreign legal literature.
 
 Conclusions/findings: The analysis of the indicated subject matter led to the conclusion that the possibility of using measures of an imperative nature is an element included in the concept of the Polish Financial Supervision Authority as a public administration body. Despite the powers vested in it, each time there must always be premises for the supervisory authority to apply certain sanctions to members of the bank’s management board. Therefore, the Polish Financial Supervision Authority is not fully independent.
 
 Originality/ value of the article: The article is of value for legislative bodies, it indicates de lege ferenda postulates that should be applied for the Polish Financial Supervision Authority to be independent in the field of supervision over bank management boards.
 
 Implications of the research: The changes to the Polish banking law are necessary for the Polish Financial Supervision Authority to be able to exercise actual supervision, especially within the banking segment.

The Impact of Board Gender Diversity on Bank Credit Risk

Abstract. Credit risk is the most important risk to consider because it is the biggest risk faced by banks. To control these risks, banks make various efforts such as implementing good corporate governance. One of the GCG strategies undertaken by banks is to diversify the company's board members. This research aims to examine the effect of board gender diversity on credit risk. The sample was determined using purposive sampling with data analysis techniques using linear regression. Research data using Stata 14. Using a sample of 41 Indonesian banks over a period from 2012 to 2018, this research finds that board gender diversity has a significant negative effect on bank credit risk. This study concludes that the greater the proportion of women on the bank's board, the less credit risk the bank has.

Landmarks in the Evolution of the Main Types of Banking Operations of Albina in Sibiu 1872-1946. I

Abstract The 75 years history of Albina Bank reflects in its main characteristics that particularize it in the modern banking system the forms and crediting policies present in its statutes. The initial focus of the Albina Bank board was to activate a diverse palate of credit activities – in the first statute of the bank we can find no less than 15 types of loans. Few were actually accommodated, according to the possibilities of financing and also related to the social and economic background of the future debtors that came, the majority until 1918 from the rural areas. More so, the bank took into account the economic, financial and political context where the Romanian elite from Transylvania activated. Thus, in the first period of activity of the Albina bank its board will activate the most mobile types of crediting (credit of input and lending with public collaterals) wanting to increase the funding sources which are the main focus on the first part on an extended study.

Assessing the Quality of Bank Boards: Evidence from the Indian Banking Industry

The article employs hand-collected data on 14 board characteristics for the period from 2004–2005 to 2016–2017 to empirically assess the evolution of board governance practices in the Indian banking industry. For this, we construct a comprehensive index for board governance and four sub-indices of board effectiveness. The study sheds light on how various characteristics of Indian bank boards have evolved over time. The mean value of the board index rose 33 per cent during the period of analysis, indicating a significant improvement in board governance practices of banks. The improvement in practices is primarily due to a considerable transition in the sub-dimensions of board structures and board independence. The transition in board structure results from the larger number of banks appointing different persons as CEOs and chairpersons; the change in board independence has principally emanated from the larger number of banks providing training to their independent directors, declarations and conducting separate meetings. Yet, our findings recommend room for further improvement in various aspects of board governance, including appointment of non-executive chairpersons, female directors and board independence. JEL Classification: G21, G34, C23

Accounting Model for Impairment under IFRS 9 and its Impact on Loss Allowance

Purpose: The presented study is aimed at examining the impact of the above amendment on the amount of loan loss allowances based on the financial statements of the study sample that focused on the largest banks in Europe, and the study also intends to highlight the components of the accounting model for impairment of financial instruments under IFRS 9 in addition to the proposed models calculate the probability of the default main parameter in equation of ECL. Approach/Methodology/Design: This study used the casual relationship approach to describe the relationship between the variables of study based on the annual reports of the largest European banks, and the data analyzed by non-parametric statistics according to the result of the normality test. Findings: First, the new amendment related to the impairment of financial instruments under IFRS 9 has no significant impact on the total amount of ECL for the largest banks in Europe. Second, there is no difference among banks in the same country in terms of the calculation of ECL. Third, there is a difference among European countries in the amount of loss allowances for loans. Finally, there is a difference in terms of the total assets and the total amount of loan loss allowances. Practical Implications: The presented study provides significant results about the amount of loss allowances for largest banks in Europe that were less than expectations before the implementation for IFRS 9, which will have a significant impact for banks in particular and the economy as a whole in the case of compliance with real instruction for IFRS 9. Originality/Value: Original study, and our findings have important for bank boards, executive managers in these banks, investors, and accounting standard-setting bodies.

Analysis of Organizational Communication on Employees’ Performance: A Case Study of Selected Deposit Banks in Port Harcourt, Rivers State, Nigeria

This work was conducted to investigate performance and structure of Nigerian banks. Based on existing literature, M-form theory was used to explain possible impact of structure variables based on number of bank department, branches and workers on performance that was measured using “profit after tax”. Corporate or business governance variable were measured using number of banks board members as control variable using five banks operating in Nigeria banking sector within fifteen year period that ranged from 2001-2015. The result revealed that the entire structure variables used are positively associated or related to performance. Again, it was noticed that structure variables which are “bank division/department, bank branches” are positively and significantly impacted on banks performance while number of workers positively and insignificantly affected banks performance. Corporate governance variable which was introduced showed that number of members of Directors was equally positive and significant statistically.