Jassaud, Ν. (2014) “The role of corporate governance in strengthening banks“, VoxEU Organisation, 30 October.
Sound corporate governance is essential for a well-functioning banking system and the integrity of financial markets. This column discusses the corporate governance of Italian banks, its regulatory framework, and the specific challenges arising from the role played by foundations and large cooperatives. Although Italian banks have recently made progress in improving their corporate governance, more needs to be done.
Background: The recently released ECB balance sheet assessment highlighted nine Italian banks that failed the asset quality review (AQR) and stress tests – before 2014 recapitalisation. Eight of them fall into the categories described in this article (and 14 out of the 15 Italian banks participating in the assessment).
- In Italy, bank ownership through foundations and bank cooperatives raises specific challenges for corporate governance.
With no shareholders, banking foundations are subject to political influence, which affects the composition of their boards of directors and, in turn, key decisions regarding their activities. In the cooperative banks, restrictions on ownership and voting rights (one member, one vote) weaken market discipline and the bank’s capacity to raise outside capital. Both types of banks tend to have smaller capital buffers and weaker asset quality than other Italian banks. To safeguard the soundness of these banks, regulation and supervision must ensure that any governance weakness are addressed and do not undermine bank stability.
Relevant posts:
- De Mooij, R., Keen, M. & Perry, V. (2014) “Taking a bite out of Apple? Fixing international corporate taxation“, VoxEU Organisation, 14 September.
- Bacchetta, P. & Benhima, K. (2014) “The role of corporate saving in global rebalancing“, VoxEU Organisation, 24 August.
- ICAP (2014) “Corporate Insolvencies in Europe, 2013/14“, Creditreform, Wirtschaftsforschung, July.