Regulation and Governance

Sergio Scandizzo

In the aftermath of the 2008–09 financial crisis, regulators and governments around the world started to question the way financial institutions were managed and how those at their helms should be held accountable for their decisions. The result was a major overhaul of laws and regulations that only a few months earlier had looked very much state of the art. After a brief discussion of the relationship between financial regulation and governance, this chapter will examine the most important of such changes and their implication for bank governance.

THE ROLE OF FINANCIAL REGULATION IN BANK GOVERNANCE

We have looked in general at banks, their characteristics and the consequences of such peculiarities on their governance. We shall now address both the rationale for, and the consequences of, regulation and the role of government in supporting the banking system.

As mentioned in previous chapters, there is indeed something special about banks. In particular, the nature of banking activities is such that related externalities have a tendency to affect other institutions first, the whole financial system next and the general public in the end, with the potential of an eventual