Corporate Governance In Banks

Abstract

Banks constitute the largest financial intermediaries around the world and possess stupendous power of leverage. Unlike in the Corporate World, authorities like RBI and the government play a direct role in bank governance through bank regulation and supervision. This role is justified by the need to ensure systemic Stability, Financial stability and deposit insurance liability considerations. Banks enjoy the benefit of high leverage with the downside protection of deposit insurance which weakens their incentives for strong management monitoring. While a ubiquitous form of corporate control and concentrated ownership will raise new barrier to effective corporate governance, large investors may manipulate the Firm contrary to the broad interests of the banks and other stakeholders.