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Is Insufficient Supervisory Board Competence a Risk Factor for Banks?

Author

Listed:
  • Harald Hau
  • Tim-Ole Radach
  • Marcel Thum

Abstract

The downfall of Credit Suisse should serve as a lesson that supervisory board competence determines the long-term risk of a bank. In a much-cited study, we investigated the relationship between competent board supervision and the performance of German banks during the 2008/2009 financial crisis. This policy brief summarizes the results of our updated study, which shows that despite legislative efforts, there is still a long way to go. Key Messages The downfall of Credit Suisse should serve as a lesson that supervisory board competence determines the long-term risk of a bank. The relationship between competent board supervision and bank performance has been confirmed for many countries since our much-cited study of German banks during the 2008/2009 financial crisis. However, our updated study shows that despite legislative efforts, board competence in Germany has improved only slightly. In particular, public banks are lagging behind. We recommend that bank supervisors systematically measure, track, and report bank board competence.

Suggested Citation

  • Harald Hau & Tim-Ole Radach & Marcel Thum, 2024. "Is Insufficient Supervisory Board Competence a Risk Factor for Banks?," EconPol Policy Brief 64, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    • Handle: RePEc:ces:econpb:_64
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    File URL: https://www.ifo.de/DocDL/EconPol-PolicyBrief_64_0.pdf
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    References listed on IDEAS

    as
    1. Mavrakana, Christina & Psillaki, Maria, 2019. "Do board structure and compensation matter for bank stability and bank performance? Evidence from European banks," MPRA Paper 95776, University Library of Munich, Germany.
    2. Harald Hau & Marcel Thum, 2008. "Wie (in-)kompetent sind die Aufsichtsräte deutscher Banken?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 61(19), pages 27-29, October.
    3. Andrew Ellul & Vijay Yerramilli, 2013. "Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies," Journal of Finance, American Finance Association, vol. 68(5), pages 1757-1803, October.
    4. Chaojie Jin & Emmanuel Mamatzakis, 2018. "Board competence and bank performance in China," Economics Bulletin, AccessEcon, vol. 38(2), pages 681-688.
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