Chapter 1: Corporate Governance, Bank Regulation and Activity Expansion in the United States
Bernard Shull INTRODUCTION Characterized by principal-agent issues, the problems addressed by corporate governance have been manifest in their impact on economic eﬃciency and, at times, in the self-serving and/or abusive behavior by managements that jeopardizes company viability and the welfare of shareholders. Bank regulation can also be construed as deriving from agency issues, in this case, arising out of a separation between bank management and government. Problems addressed by regulation may also materialize in ineﬃciency and in self-serving and/or abusive managerial behavior that can jeopardize a bank’s viability and the welfare of a broad group of ‘stakeholders’, including shareholders. Given the similarities in the nature of the problems and also in some of the solutions, an overlap in corporate governance and bank regulation is to be expected. It is plausible that the extensive deregulation that has occurred in the United States over recent decades has aﬀected the overlap. This could occur through new approaches to capital requirements sanctioned by international agreement, and through new approaches to supervision necessitated by the emergence of large and complex banking organizations. In particular, extension of the intersection should be manifest in the liberalization of activity restrictions that has facilitated the aﬃliation of banks with other ﬁnancial and commercial ﬁrms. The Wal-Mart proposal to acquire a deposit-insured industrial loan corporation (ILC) presents a case-in-point. The eﬀects of deregulation on the corporate governance-bank regulation relationship, and particularly with respect to the developing intersection between banking and commerce, is considered below. The...
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