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Bank Governance, Regulation, and Risk Taking

Author

Listed:
  • Luc Laeven
  • Ross Levine
Abstract
This paper conducts the first empirical assessment of theories concerning relationships among risk taking by banks, their ownership structures, and national bank regulations. We focus on conflicts between bank managers and owners over risk, and show that bank risk taking varies positively with the comparative power of shareholders within the corporate governance structure of each bank. Moreover, we show that the relation between bank risk and capital regulations, deposit insurance policies, and restrictions on bank activities depends critically on each bank's ownership structure, such that the actual sign of the marginal effect of regulation on risk varies with ownership concentration. These findings have important policy implications as they imply that the same regulation will have different effects on bank risk taking depending on the bank's corporate governance structure.

Suggested Citation

  • Luc Laeven & Ross Levine, 2008. "Bank Governance, Regulation, and Risk Taking," NBER Working Papers 14113, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:14113
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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