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Bank Governance Structures and Risk Taking

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Dennis Froneberg

The book sheds light on two closely related and highly relevant governance themes: the composition of supervisory boards and financial expertise as well as ownership structure. The author focuses on the financial expertise of supervisory boards and its impact on performance and risk. He analyses how supervisory boards are composed and how much financial expertise their members have, assesses the impact of financial expertise on a banks’ risk-return profiles and investigates if financial expertise in internal bank governance contributes to more stability and less risk taking in banking. Finally, he examines the effects of the ownership structure on credit risk. He finds that banks with a more concentrated ownership structure tend to behave riskier, which is indicated by larger CDS spreads.
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V CDS and Bank Ownership Structures: Does the Credit Side Show Who Advocates More Risk?

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Abstract This paper analyzes the impact of ownership concentration on bank risk-taking, by taking national regulation into account. In particular, we examine the effects of the ownership structure on credit risk, which is estimated by CDS spread measures. Considering 86 global privately held and publicly listed banks from 22 countries in a panel analysis for the years 2005–2008, we document that banks with a more concentrated ownership structure tend to be riskier as they have larger CDS spreads. Furthermore, we observe that bank regulation has a negative impact on banks’ credit risk. Larger banks exhibit—in line with the “too big to fail” argument—significantly lower risk than smaller banks.

V.1 Introduction

The financial crisis and subsequent bailouts have proved the systemic importance of an intact banking system for the stability and development of an economy (Huang, Zhou, and Zhu, 2009).

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