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Subprime Crisis and Board (In-)Competence: Private vs. Public Banks in Germany

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  • Harald Hau
  • Marcel Thum

Abstract

We examine evidence for a systematic underperformance of Germany’s state-owned banks in the current financial crisis and study if the bank losses can be traced to the quality of bank governance. For this purpose, we examine the biographical background of 593 supervisory board members in the 29 largest banks and find a pronounced difference in the finance and management experience of board representatives across private and state-owned banks. Measures of “boardroom competence” are then related directly to the magnitude of bank losses in the recent financial crisis. Our data confirms that supervisory board (in-)competence in finance is related to losses in the financial crisis. Improved bank governance is therefore a suitable policy objective to reduce bank fragility.

Suggested Citation

  • Harald Hau & Marcel Thum, 2009. "Subprime Crisis and Board (In-)Competence: Private vs. Public Banks in Germany," CESifo Working Paper Series 2640, CESifo.
    • Handle: RePEc:ces:ceswps:_2640
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    More about this item

    Keywords

    governance; supervisory boards; banking; financial crisis;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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