Is Insufficient Supervisory Board Competence a Risk Factor for Banks?

Harald Hau, Tim-Ole Radach and Marcel Thum

No 64, EconPol Policy Brief from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

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.

Date: 2024
New Economics Papers: this item is included in nep-ban
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