Edited by Susan Watson and P. M. Vasudev
Chapter 8: Banks, corporate governance and the public interest: the potential role of public interest directors
Banks play a unique role in the economy by creating credit and by acting as gatekeepers of the financial system. The regulation and corporate governance of banks therefore engages the public interest in a way that is distinct from that of non-banks. I articulate three specific public interests in the banks: the stability of the bank (and by extension of the banking system), the profitability of the bank, and access to basic banking services, including affordable credit. The question, then, is what do these public interests imply for the regulation and corporate governance of banks? This chapter explores one possible answer — changing the composition of the boards of directors of banks, in particular, of Canada’s ‘domestic systemically important banks’ (the so called ‘Big Six’), to include ‘public interest directors’. Public interest directors were appointed in Ireland in the wake of that country’s 2008 banking crisis. This chapter builds on previous research into the Irish experience. After reviewing the current regulatory structure governing Canada’s banks, I explain the potential benefits of public interest directors and potential pitfalls. I conclude that the potential benefits could be significant and the potential pitfalls overcome, but that further examination and elaboration of the public interests engaged by banks and the banking system, and how these interests may occasionally conflict, is necessary before this regulatory mechanism can be implemented successfully.
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